Company X is considering changing its capital structure, in light of the tough business environment. Currently, Company

Question:

Company X is considering changing its capital structure, in light of the tough business environment. Currently, Company X’s total capital consists of:

$950 million in debt

$20 million in leased assets

$500 million of preferred stock

$900 million in common stock

$750 million in retained earnings

The debt coupon is 8% and tax rate is 40% while the current preferred share price is $96.20 and the dividends per share is $9.

The company's common stock is trading at $25.50, it's dividend payout this year is $1.15 the growth rate of the dividend is 8.5%. Leases are at an average cost of 8%.

a. Find the weighted average cost of capital given the data above

b. If Company X wants to change its capital structure (i.e., lower its WACC), what should it do?

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... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...