Waffle Corporation is estimating its WACC. Its target capital structure is 30 percent debt, 20 percent...

  

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Waffle Corporation is estimating its WACC. Its target capital structure is 30 percent debt, 20 percent preferred stock, and 50 percent common equity. Its bonds have an 8 percent coupon, paid semiannually, a current maturity of 20 years, and sell at par of $1,000. The firm can sell, at par ($100), preferred stock which pays an 8.4 percent annual dividend, but flotation costs of 4 percent of the proceeds would be incurred. Waffle's beta is 1.0, the Treasury bond yield is 4 percent, and the market risk premium is 6 percent. Waffle is a constant-growth firm which just paid a dividend of $2.00, sells for $42.00 per share of common equity, and has a growth rate of 5 percent. The firm's policy is to use a risk premium of 2 percentage points when using the bond- yield-plus-risk-premium method to find the cost of common equity (rs). The firm's marginal tax rate is 25 percent. 5. What is the firm's cost of internal equity using the discounted cash flow (DCF) approach? 6. What is Waffle's cost of common stock using the bond-yield-plus-risk-premium approach? 7. What is Waffle's WACC? Show all work. Waffle Corporation is estimating its WACC. Its target capital structure is 30 percent debt, 20 percent preferred stock, and 50 percent common equity. Its bonds have an 8 percent coupon, paid semiannually, a current maturity of 20 years, and sell at par of $1,000. The firm can sell, at par ($100), preferred stock which pays an 8.4 percent annual dividend, but flotation costs of 4 percent of the proceeds would be incurred. Waffle's beta is 1.0, the Treasury bond yield is 4 percent, and the market risk premium is 6 percent. Waffle is a constant-growth firm which just paid a dividend of $2.00, sells for $42.00 per share of common equity, and has a growth rate of 5 percent. The firm's policy is to use a risk premium of 2 percentage points when using the bond- yield-plus-risk-premium method to find the cost of common equity (rs). The firm's marginal tax rate is 25 percent. 5. What is the firm's cost of internal equity using the discounted cash flow (DCF) approach? 6. What is Waffle's cost of common stock using the bond-yield-plus-risk-premium approach? 7. What is Waffle's WACC? Show all work.