Midac Corporation wants to arrange for $50 million in capital to finance the manufacturing of a new

Question:

Midac Corporation wants to arrange for $50 million in capital to finance the manufacturing of a new consumer product. The current plan is 60% equity capital and 40% debt financing. Calculate the WACC for the following scenario:

Equity capital: 60%, or $35 million, via common stock sales for 40% of this amount that will pay dividends at a rate of 5% per year, and the remaining 60% from retained earnings, which currently earn 9% per year.

Debt capital: 40%, or $15 million, obtained through two sources-bank loans for $10 million borrowed at 8% per year, and the remainder in convertible bonds at an estimated 10% per year bond dividend rate.

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... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... 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...