Suppose that Coca-Cola wants to build a new production facility in Bloomington, Indiana. The project will require $100.00 million to get started. Coke will finance the $100.00 million using debt and common stock. Coke’s management desires the following long term financing mix for projects: 33.00% debt and 67.00% common equity.
Some additional information about the capital components for Coke:
DEBT: The project will use bonds with 10-year maturities. Coke has a bond issue currently trading on the market that pays an 7.50% annual coupon (with $1000 face) that is selling for $1,021.00.
COMMON STOCK: The current dividend for Coke is $2.09 and the price of the stock is $52.00. Dividends are expected to grow by 7.00% into the foreseeable future.
The tax rate facing the firm is 40.00%.
a) If we raise the capital proportionally, how much new debt will we need for the project? (express in terms of millions)
b) If we raise the capital proportionally, how much common equity will we need for the project? (express in terms of millions))
c) What is the cost of debt for Coca-Cola?
d) What is the cost of equity for Coca-Cola?
e) What is the weighted average cost of capital for Coca-Cola?