Question: Please assist with this questions Farm Implement, Inc. is evaluating its Weighted Average Cost of Capital (WACC) to prepare for an upcoming facility expansion project.


Please assist with this questions


Farm Implement, Inc. is evaluating its "Weighted Average Cost of Capital" (WACC) to prepare for an upcoming facility expansion project. The current market value of the firm's capital structure is as follows: Type of Financing Market Value (in thousands) Debt $750 Preferred Stock $120 Common Stock $1,200 Total: $2,070 The company's outstanding debt has a pre-tax interest cost of 7.5%. The company uses the discounted cash flow approach to determine the cost of equity (i.e., the Gordon constant growth stock valuation model). Farm Implement's common stock currently trades at $125 per share. The year-end dividend ( D1 ) is expected to be $2.50 per share, and the dividend is expected to grow forever at a constant rate of 5% per year. The company's effective tax rate is 28%. The firm's preferred stock pays an annual dividend of $1.75 and has a current market value of $28.00. Calculation of the cost of each of Farm Implement's sources of financing: a. What is Farm Implement's after-tax cost of debt financing? b. What is Farm Implement's cost of preferred stock financing? c. What is the cost of Farm Implement's new common stock equity financing? 8d. What is Farm Implement's current Weighted Average Cost of Capital (WACC), based on the cost of each type of financing that you calculated on page 8, and the market value "weight" proportions of the firm's current capital structure, based on the table on page 8 of this exam
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