WACC-part A:
Copernicus, Inc. has determined that its target capital structure will be 60% debt, 10 percent preferred stock, and 30% common stock. As the financial manager, the CFO has informed you that the company's before tax cost of debt is 10%, preferred stock is 14%, and common stock is 16%. In addition, the company's marginal tax rate is 40 percent. Based on the information provided, calculate the weighted average cost of capital (WACC).
WACC-part B:
Kepler, Inc. has estimated that its target capital structure will be 30% debt, 15 percent preferred stock, and 55 percent common stock. Also, the company's provides the following data:
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Bond coupon rate
11%
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13%
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Bond yield to maturity
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Dividend, expected common
$10.00
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$3.00
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Dividend, preferred
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Price, common
$98.00
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$50.00
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Price, preferred
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Growth rate
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8%
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Corporate tax rate
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30%
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Based on the data provided, compute the firm's weighted average cost of capital (WACC).