A firm has $50 million in 10-year debt with a YTM of 9% and a coupon of 10% and thus selling at premium of $64.18
It also has 200,000 shares of preferred stock with a $4 dividend that sells for $90 a share and common stockwith a book value of $80 million and a par value of $5 a shre that sells for $50 a share.
The common stock pays a dividend of $4 which is expected to grow at 5% rate forever. The firm has a beta of 1.2
A. Given this data find WACC for this firm if the tax rate is 40%. Use the dividend growth model. Then repeat using the CAPM if the expected return on the S&P is 13% and the risk-free rate is 7%
B. Next, assume this firm wants to get into a new industry and has chosen a proxy company with a beta of 1.6 and debt-to-equity ratio of 0.4
Find the WACC for the firm.