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Task 2: Weighted Average Cost of Capital (WACC) You are given the following information for Full Moon, Inc.: Debt: 1,250,000 bonds outstanding with a 5.5% coupon rate, $1,000 par value, 14 years to maturity, selling for $946; the bonds make semiannual payments. Common stock: 14,541,000 shares outstanding, selling for $64 per share; the beta is 0.74 ; the dividend payment was $3.25 per share last year; the dividend will grow steadily at a rate of 3.00% per year into the indefinite future Preferred stock: 475,000 shares of 6.15% preferred stock, currently selling for $106 per share. Market: 9.80% expected return on the market and a 4.75% risk-free rate. Tax rate: 21% Questions: 3. What is the company's after-tax cost of debt? (5 points) 4. What is the company's cost of common stock (Use the average of the two methods)? (5 points) 5. What is the company's cost of preferred stock? (5 points) 6. What is the company's WACC? (5 points) Calculation \& Output Market value of debt Market value of equity Market value of preferred Market value of firm Market value capital structure Weight of Debt Weight of Common Stock Weight of Preferred Stock Question 3 Pretax cost of debt Aftertax cost of debt Question 4 Cost of common stock (SML) Cost of common stock (DDM) Cost of common stock (Average) Question 5 Cost of preferred stock Question 6 WACC Task 2: Weighted Average Cost of Capital (WACC) You are given the following information for Full Moon, Inc.: Debt: 1,250,000 bonds outstanding with a 5.5% coupon rate, $1,000 par value, 14 years to maturity, selling for $946; the bonds make semiannual payments. Common stock: 14,541,000 shares outstanding, selling for $64 per share; the beta is 0.74 ; the dividend payment was $3.25 per share last year; the dividend will grow steadily at a rate of 3.00% per year into the indefinite future Preferred stock: 475,000 shares of 6.15% preferred stock, currently selling for $106 per share. Market: 9.80% expected return on the market and a 4.75% risk-free rate. Tax rate: 21% Questions: 3. What is the company's after-tax cost of debt? (5 points) 4. What is the company's cost of common stock (Use the average of the two methods)? (5 points) 5. What is the company's cost of preferred stock? (5 points) 6. What is the company's WACC? (5 points) Calculation \& Output Market value of debt Market value of equity Market value of preferred Market value of firm Market value capital structure Weight of Debt Weight of Common Stock Weight of Preferred Stock Question 3 Pretax cost of debt Aftertax cost of debt Question 4 Cost of common stock (SML) Cost of common stock (DDM) Cost of common stock (Average) Question 5 Cost of preferred stock Question 6 WACC