The company has $200,000,000 in common stock equity with an estimated 10% annual cost of capital. You

Question:

The company has $200,000,000 in common stock equity with an estimated 10% annual cost of capital. You recently issued $100,000,000 in corporate bonds that currently pay a 6% annual yield. Finally, you have $100,000,000 in retained earnings with an estimated opportunity cost of 9% per year.

a. What is your weighted average cost of capital? (Calculate, and show the work)

b. What could this business do to bring this cost down? Discuss, using specific examples.

c. Why is knowing WACC important for a business?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...