A firm is planning for major expansion of its production facility.
-Tax rate: 35%
-The firm has 10 year bonds outstanding that pay 9% coupon annually and currently sell for $1,192.00
-The company has 8% preferred stock with a par value of $25, which currently sells for $26.15
-The common stock currently sells for $75.00, currently pays a $3.00 dividend annually, and the dividend grows grows 5% per year.
-the company stocks beta= .95, the risk free rate is 3% and the market risk premium is 7%
-the firms capital structure is 40% debt, 50% common equity and 10% preferred stock.
1. Calculate firms after tax cost of debt
2. Calculate firms cost of preferred stock
3. Calculate the firms cost of retained earnings ( equity)
4. Determine the company’s weighted average cost of capital
5. What is this WACC used for? Explain