Coleman Technologies is considering two major expansion programs that have been proposed by the company's information technology group. Before proceeding with the expansions, the company must first estimate its weighted average cost of capital (WACC). Suppose you are the lead financial analyst on the project and your assistants have provided you with the following data, which they believe may be relevant to the task. 1. The firm's tax rate = 25%. 2. For the bond: a) The current price = $1,153.72. on 1,000 par value bonds b) The coupon rate = 12% with semiannual payment. c) The years to maturity = 15 years. d) Flotation cost = 0. 3. For preferred stock: a) The current price = $30 with a dividend = $3.30 b) The par value = $100. c) Flotation cost = 0 4. For common stock: a) The current price = $55 per share. b) The current dividend (D0) = $2.10. c) Dividends are expected to grow at a constant annual rate = 9%. d) Flotation cost = 10% of the current price) e) The company's beta = 1.516. f) The yield on T-bonds = 6%. g) The market risk premium = 5%. h) Common shares outstanding = 50,000. 5. Coleman's target capital structure is 28% debt, 7% preferred stock, and 65% common equity. The CFO wants an update and has the following 7 questions regarding WACC

QUESTION 6 What is the company's overall, or weighted average cost of capital using the DCF for cost of common equity?

a. approximately 10%

b. approximately 12%

c. approximately 2%

d. approximately 15%

QUESTION 7 The CFO thinks that the $0 flotation cost for bonds assumption is incorrect based on a conversaton with their banker. What would the after-tax cost of debt be with flotation cost = $12 per bond?

a. 8.87%

b. 10.99%

c. 15.35%

d. 7.6%

8. Conduct a quick sensitivity analysis on the model you used to answer the previous questions. For the sensitivity analysis change (by either increasing or decreasing) the value of one of the factors which affects WACC. Describe what you changed and describe its impact on WACC. [You do not need to post your excel work.] Also, identify 2 factors that could have caused the change.