Welch Corporation uses bond, preferred stock, and common stock financing. The market value of each of these sources of financing and the before-tax required rates of return for each are given in Exhibit 13:

Other financial information (dollars in millions):

• Net income available to common shareholders = $110.
• Interest expenses = $32.
• Preferred dividends = $8.
• Depreciation = $40.
• Investment in fixed capital = $70.
• Investment in working capital = $20.
• Net borrowing = $25.
• Tax rate = 30 percent.
• Stable growth rate of FCFF = 4.0 percent.
• Stable growth rate of FCFE = 5.4 percent.

i. Calculate Welch Corporation’s WA CC.
ii. Calculate the current value of FCFF.
iii. Based on forecasted Year 1 FCFF, what is the total value of Welch Corporation and the value of its equity?
iv. Calculate the current value of FCFE.
v. Based on forecasted Year 1 FCFE, what is the value of equity?

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EXHIBIT 13 Welch Corporation Capital Structure (Dollars in Millions) Market Value ($) Bonds 400 Preferred stock 100 Common stock 500 Total 1,000 Required Return (%) 8.0 8.0 12.0