XYZ manufacturing company is considering a major expansion program that has been proposed by the company's information technology manufacturing group. Before proceeding with the expansion, the company must estimate its cost of capital. Assume you are the CFO of the company. Your first task is to estimate XYZ's cost of capital. Your analysts have provided you with the following data, which they believe may be relevant to your task.
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Tax rate
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40%
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|
|
|
|
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Bond info
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Coupon
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Semiannual payment
|
Years
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Price
|
|
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12%
|
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15 years
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1153.72
|
|
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Preferred stock
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Par value
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Quarterly Div
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Current Price
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|
Dividend Payout Ratio
|
|
100
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10%
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111.1
|
|
.94
|
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Common stock
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Last year's Dividend
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ROE
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Beta
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T-bond yield
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Market Return Rate
|
|
4.19
|
.041
|
1.2
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7%
|
13%
|
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Capital Structure
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Debt
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Preferred stock
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Common stock
|
|
|
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35%
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20%
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45%
|
|
|
1. What sources of capital should be included when you estimate XYZ's WACC? Also, what is WACC a measure of?
2. What is the market interest rate on XYZ's debt and its component of after-tax cost of debt?
3. What is the firms cost of preferred stock?
4. What is XYZ's required rate of return on common equity?
5. What is XYZ's growth rate?
6. What is XYZ's current stock price?
7. What is XYZ's WACC?