1 Kurn Co. is considering a new project that will require an initial investment of $5...

Transcribed Image Text:

1 Kurn Co. is considering a new project that will require an initial investment of $5 million. It has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. Kurn has bonds outstanding that mature in five years with a face value of $1,000, an annual coupon rate of 10% (pating interest semi-annually), and a market price of $1,050.76. The yield on the company's current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stock that pay an annual dividend of 2 $9 at a price of $95.25 per share. Kurn does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $35.35 per share, and it is expected to pay an annual dividend of $1.56 at the end of next year. Flotation costs will represent 4% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 3 8.2%, and they face a tax rate of 25%. What will be the WACC for this project? 4 5 6 7 8 9 10 11 + 12 13 14 15 1 Kurn Co. is considering a new project that will require an initial investment of $5 million. It has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. Kurn has bonds outstanding that mature in five years with a face value of $1,000, an annual coupon rate of 10% (pating interest semi-annually), and a market price of $1,050.76. The yield on the company's current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stock that pay an annual dividend of 2 $9 at a price of $95.25 per share. Kurn does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $35.35 per share, and it is expected to pay an annual dividend of $1.56 at the end of next year. Flotation costs will represent 4% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 3 8.2%, and they face a tax rate of 25%. What will be the WACC for this project? 4 5 6 7 8 9 10 11 + 12 13 14 15