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1; Illinois State University:F|L2 x :'2 MindTapCengage Learning x gill Ravenna Dress WhiteiHeilo i x 8 Solved Demolnc. is expected x i + v 6 C' i ng.cengagecom/slaticb/ui/evo/index.himi?dep|oymeni|d=59051228932336980530062380&e|SBN297803571i4582&snapshot|d=3275911&id:1680750..t 0- ] Y} T9 * El 9 Blake v in CENGAGE l MINDTAP Q Search this course My Home Ch 10: Assignment The Cost of Capital X 6. Solving for the WACC Courses Catalog and Study Tools The WACC is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the WACC Rental 0 tions F is an appropriate discount rate only for a project of average risk. College Success Tips Career Success Tips Analyze the cost of capital situations of the following company cases, and answer the specific questions that nance professionals need to address. RECOMMENDED FOR vou Consider the case of Turnbull Co. Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 8.2%, and its cost of preferred stock is 9.3%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 12.4%. However, if it is necessary to raise new Study Tools for In ' common equity, it will carry a cost of 14.2%. Corporate Finance . If its current tax rate is 40%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculations to two 9 Help decimal places.) El Give Feedback 0 0.58% O 0.64% O 0.70% O 0.86% Turnbull Co. is considering a project that requires an initial investment of $1,708,000. The firm will raise the $1,708,000 in capital by issuing $750,000 of debt at a beforetax cost of 11.1%, $78,000 of preferred stock at a cost of 12.2%, and $880,000 of equity at a cost of 14.7%. The firm faces a tax rate of 40%. What will be the WACC for this project? V (Note: Round your intermediate calculations to three decimal places.) Consider the case of Kuhn Co. 9 Illinois State University:FlL2 x :'2 MindTapCengage Learning x gill] Ravenna Dress WhitelHello i x 8 Solved Demolnc. is expected x l + v 6 C' i ng.cengagecom/siaticb/ui/evo/index.himl?dep|oymenild=59051228932336980530062380&e|SBN297803571i4582&snapshotld=3275911&id:1680750... 0- ] Y} T9 * El 9 Blake v in CENGAGE l MINDTAP Q Search this course My Home Ch 10: Assignment The Cost of Capital X If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 12.4%. However, if it is necessary to raise new Courses _ _ _ common equity, it Will carry a cost of 14.2%. Catalog and Study Tools If its current tax rate is 40%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equity Rental Options capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculations to two decimal places.) College Success Tips O 0.58% Career Success Tips 0 0 64% RECOMMENDED FOR YOU O 0.70%: ' O 0.86% Turnbull Co. is considering a project that requires an initial investment of $1,708,000. The firm will raise the $1,708,000 in capital by issuing $750,000 of debt at a beforetax cost of 11.1%, $78,000 of preferred stock at a cost of 12.2%, and $880,000 of equity at a cost of 14.7%. The firm faces a tax Study Tools for In . rate of 40%. What will be the WACC for this project? V (Note: Round your intermediate calculations to three decimal places.) Corporate Flnance 0 Consider the case of Kuhn Co. 9 Help Kuhn Co. is considering a new project that will require an initial investment of $45 million. It has a target capital structure of 35% debt, 2% preferred m Give Feedback stock, and 63% common equity. Kuhn has noncallable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1555.38. 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 $9 at a price of $92.25 per share. Kuhn 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 $22.35 per share, and it is expected to pay a dividend of $1.35 at the end of next year. Flotation costs will I , , represent 3% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 8.7%, and they face a tax w rate of 40%. What will be the WACC for this project? V (Note: Round your intermediate calculations to two decimal places.) Grade It Now Save & Continue Continue without saving