Question: I need help solving these questions . Thank you! Excel Activity: Calculating the WACC Rere is the condensed 2021 balance sheet for Shove Computer Company

Excel Activity: Calculating the WACC Rere is the condensed 2021 balance sheet for Shove Computer Company (in thousands of dollars): Skye's earnings per share last year were \$2.40. The common stock sels for $55.00, last year's dividend (D0) was $1.30, and a fotation cost of 12.0 would be required th seti new common stock. Security analysts are projecting that the commen dividend will grow at an anneal rate of 10%. Sikye's preferred stock pays a dividend of 52.50 per thare, and as preferted stock selts for \$25.00 per share. The firm's before-tax cost of debt is 8ow. and its marginal tax rate is 25\%. The firm's currently outstanding beW annual coupon rate, long. term debt sells at par value. The market risk premium is 6%, the risk-free rate is 7\%, and sikye's beta is 1,682 , The fimm's total debt, which is the sum of the campany's shart-term debt and long-term debt, equals $1,375 miltion. The data has been coliected in the Microsof Excel file below. Downioad the spresdsheet and perform the required analysis to answer the questians below. De not round intermedate cafculations. Round wour answers to two decimal places: a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cosk of equity from retained earnings, and the cost of newiy issued common stock, Use the DCF method to find the cost of common equity. After:tax cost of debt: Cost of preferred stock: Cost of retained eamings: Cost of new common stock: b. Now calculate the cost of common equity from retained earnings, using the CADN method. c. What is the cost of new common stock based on the CAPM? (Hintr Find the difference between rf and rsas as determined by the DCF mechod, and add that differential to the cagM value for rs ) d. If Skye continues to use the same market-value capital structure, what is the firm's wacC assuming that (1) it uses only retained earnings for equity and (2) if it tixpands to rapidy that it must issue new common stock? (Hint: Use the market valoe capital structure excludiog current liabiities to determine the weights. Mso, use the simple average of the required values obtained under the two methods io calculating wACC.) wace : WACC2
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
