1 Excel Problem 2 Show All Excel Work (29 points) Browne Inc. is considering a capital project with average risk and needs to calculate the weighted 3 average cost of capital. The marginal tax rate is 35%. 24 Debt: 5 Bond 1: Browne has 150,000, 4.30 percent coupon bonds outstanding, with 30 years to maturity. The current price is $965 per bond. The bonds are semi-annual. 7 Bond 2: Browne has 100,000, 5.55 percent coupon bonds outstanding, with 20 years to maturity. The current price is $1,120 per bond. The bonds are semi-annual. . 0 Preferred Equity: There are 1,500,000 Preferred shares outstanding. These are 4.0 percent preferred 1 stocks and the current price per share is $65. 2 3 Common Equity: Browne has 9,750,000 shares of common stock selling for $25 per share. The firm's 4 beta is 0.95. Browne just paid a $0.96 dividend per share. The dividend is expected to grow at 5 5 percent forever. 6 Market: The expected return on the market is 11% and the risk free rate is 3 percent. 7 8 The marginal tax rate is 35%. % 9 Determine the weighted average cost of capital. 0 1 2 3 2 2 150,000 $ $1,000 $965.00 4.30% 30 years Bond 2 Semi-Annual (m) Number of Bonds Par Value Bond Value Coupon Rate Maturity 2 100,000 $1,000 $1,120.00 5.55% 20 years 4 5 6 Step 1 7 Component Costs 7 8 Bond 1 9 Semi-Annual(m) 0 Number of Bonds 0 1 Par Value 2 Bond Value 3 Coupon Rate 4 Maturity 5 6 7 7 8 9 0 1 1 2 Preferred Stock 4 Num of Shares 5 Face Value 6 Price 7 Div. 8 9 0 0 1 2 Common Stock 3 Number of Shares 4 Price 5 Beta 6 Dividend (DO) 7 Growth Rate 8 9 9 0 1 Market Information 2 Expected Market Ret. . 3 Risk-Free Rate 4 Tax Rate 1,500,000 $100.00 $65.00 4.0% 9,750,000 $25 0.95 $0.96 5.00% 11.00% 3.00% 35.00%