-ack to Assignment Attempts: Keep the Highest: 12 1. The basic WACC equation The calculation of WACC involves calculating the weighted average of the required rates of return on debt, preferred stock, and common equity, where the weights equal the percentage of each type of financing in the firm's overall capital structure. is the symbol that represents the before-tax cost of debt in the weighted average cost of capital (WACC) equation Raymond Co. has $3.9 million of debt, $2 million of preferred stock, and $2.1 million of common equity. What would be its weight on preferred stock? 0.49 0.28 0.26 0.25 Grade It Now Save & Continue Continue without saving Attempts: Keep the Highest: 13 2. An overview of a firm's cost of debt The is the interest rate that a firm pays on any new debt financing Water and Power Company (WPC) can borrow funds at an Interest rate of 10.20% for a period of eight years. Its marginal federal-plus-state tax rate is (rounded to two decimal places). 25%. WPC's after-tax cost of debt is At the present time, Water and Power Company (WPC) has 20-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,382.73 per bond, carry a coupon rate of 13%, and distribute annual coupon payments. The company incursa federal-plus-state tax rate of 25%. If WPC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 5.98% 6.64% 7.64% 7.97% Grade It Now Save & Continue Continue without saving Ch 10: Assignment - The Cost of Capital Back to Assignment Attempts: Keep the Highest: 12 3. The cost of preferred stock Preferred stock is a hybrid security, because it has some characteristics typical of debt and others typical of equity. The following table lists various characteristics of preferred stock. Determine which of these characteristics is consistent with debt and which is consistent with equity. Characteristics Debt Equity Usually no voting rights. No tax adjustments are made when calculating the cost of preferred stock. 00 O Consider the case of Bogdan Enterprises: At the present time, Bogdan Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure In the future. Bogdan has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $12 per share. If the investors pay $98.90 per share for their investment, then Bogdan's cost of preferred stock (rounded to four decimal places) will be Grade It Now Save & Continue Continue without saving