Velocity Auto Corporation has 350,000 shares of common stock, currently trading at $50/share. The common stock...

  

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Velocity Auto Corporation has 350,000 shares of common stock, currently trading at $50/share. The common stock of Velocity Auto Corporation is expected to pay a dividend next year of $2.00/share, and it has a Beta calculated at .95. It also has 50,000 shares of preferred stock, trading at $90/share. The preferred stock pays dividends of 8%. Finally, Velocity Auto Corporation has 20,000 bonds currently trading at $900/bond. The coupon rate is 5%, and the bonds will mature in 16 years. Velocity Auto Corporation expects its dividends to grow at a rate of 6%/year, and it is in a 30% tax bracket. It estimates that the risk free rate of return is 3% and the market rate of return is 11%. Calculate the WACC for Velocity Auto Corporation. Be sure to show all your work. NOTE: When calculating the cost of equity, compute the cost using the CAPM method and the DCF (Dividend Constant Growth Method) and average the two. Velocity Auto Corporation has 350,000 shares of common stock, currently trading at $50/share. The common stock of Velocity Auto Corporation is expected to pay a dividend next year of $2.00/share, and it has a Beta calculated at .95. It also has 50,000 shares of preferred stock, trading at $90/share. The preferred stock pays dividends of 8%. Finally, Velocity Auto Corporation has 20,000 bonds currently trading at $900/bond. The coupon rate is 5%, and the bonds will mature in 16 years. Velocity Auto Corporation expects its dividends to grow at a rate of 6%/year, and it is in a 30% tax bracket. It estimates that the risk free rate of return is 3% and the market rate of return is 11%. Calculate the WACC for Velocity Auto Corporation. Be sure to show all your work. NOTE: When calculating the cost of equity, compute the cost using the CAPM method and the DCF (Dividend Constant Growth Method) and average the two.

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