The following information will be used for the next three quiz questions:
Jones Industries has a current capital structure of 50% debt, 30% preferred stock, and 20% common equity. The company is trying to determine its marginal cost of capital. Assume that initially, common equity will be in the form of retained earnings and then new common stock. Assume the following as costs of the various sources of financing:
Debt = 9.6%, Preferred stock = 9%, Retained Earnings = 10%, New common stock = 11.2%
Part 1: What is the initial WACC?
a. 9.50%
b. 12.0%
c. 9.23%
d. 7.98%
e. 6.92%
2. George would like to pay for his son, Dale, college. Dale will be going to college in 15 years. Current tuition rates are $15,000 per year. George is expecting a tuition growth rate of 6%. Assume George has a rate of return of 8%, what is the cost of tuition when Dale starts college? Round to two decimal places.
$47,582.54
$41,394.81
$35,948.37
$38,137.15