The Walsh Company needs to compute its Weighted Average Cost of Capital (WACC) for the years ahead based on current market values.
The Company is in the 40% tax bracket and Alex, the owner, has developed the following information about the Company's financial structure:
Debt: The Company has current long-term bank loans outstanding of $796,000 with an average current interest rate of 6.75%. Preferred
Stock: The Company has 20,000 shares of preferred stock at a par value of $10 per share and pays a 75 cent dividend on each share each year. The current market value of the stock is $172,000.
Common Stock:
The Company has 50,000 shares of common stock which currently sell for $16.64 per share. The stock's last dividend was $1.00 and the dividend has been growing at 4% per year and is expected to continue to do so for the foreseeable future.
What is the after-tax cost of debt? (Round to the nearest xx.xxx% What is the after-tax cost of preferred stock? (Round to the nearest xx.xxx%)
What is the after-tax cost of common stock? (Round to the nearest xx.xxx%) Based on current market values, what is the weighted cost of capital for the Company? (Round to the nearest xx.xxx%)