Problem: Given the following information, calculate the WACC
Percent of capital structure:
Debt 55%
Common Equity 5
Preferred stock 40
Additional info:
Bond coupon rate 8.5%
Bond yield 7%
Bond flotation cost 2%
Dividend, expexted common $1.50
Price, common $30.00
Dividend, preferred 5%
Flotation cost, preferred 3%
Flotation cost, common 4%
Corporate growth rate 6%
Corporate tax rate 35%
a) Calculate the cost of capital assuming use of internally generated funds
b) Calculate the cost of capital assuming use of externally generated funds
c) Why is there a difference? Why does only common equity change?