1-A firm has determined its optimal capital structure which is composed of the following sources and target

market valu
proportions.

Debt 20%
Preferred Stock 10%
Common Stock 70%

Debt: The firm can sell a 12-year, $1,000 par value, 7 percent bond for $960. A flotation cost of
2 percent of the face value would be required in addition to the discount of $40.
Preferred Stock: The firm has determined it can issue preferred stock at $75 per share par value. The stock will pay a $1
annual dividend. The cost of issuing and selling the stock is $3 per share.
Common Stock: A firm's common stock is currently selling for $18 per share. The dividend expected to be paid at the en
the coming year is $1.74. Its dividend payments have been growing at a constant rate for the last four years. Four years
the dividend was $1.50. It is expected that to sell, a new common stock issue must be underpriced $1 per share in floata
costs. Additionally, the firm's marginal tax rate is 40 percent.
Calculate the wacc

2- A firm has determined its optimal capital structure, which is composed of the following sources and target market
value proportions:
Debt 30%
Preferred Stock 5%
Common Stock 65%

Debt: The firm can sell a 20-year, $1,000 par value, 9 percent bond for $980. A flotation cost of 2 percent of the face
value would be required in addition to the discount of $20.
Preferred Stock: The firm has determined it can issue preferred stock at $65 per share par value. The stock will pay a
$8.00 annual dividend. The cost of issuing and selling the stock is $3 per share.
Common Stock: The firm's common stock is currently selling for $40 per share. The dividend expected to be paid at
the end of the coming year is $5.07. Its dividend payments have been growing at a constant rate for the last five yea
Five years ago, the dividend was $3.45. It is expected that to sell, a new common stock issue must be underpriced at
$1 per share and the firm must pay $1 per share in flotation costs. Additionally, the firm's marginal tax rate is 40
percent.
sources and target market value

ost of

r value. The stock will pay a $10

d expected to be paid at the end of

the last four years. Four years ago,
derpriced $1 per share in floatation

wing sources and target market

n cost of 2 percent of the face

par value. The stock will pay an

vidend expected to be paid at

nstant rate for the last five years.
k issue must be underpriced at
m's marginal tax rate is 40
 A firm has determined its optimal capital structure which is composed of the following sources and target market valu

Debt: The firm can sell a 12-year, $1,000 par value, 7 percent bond for $960. A flotation cost of
2 percent of the face value would be required in addition to the discount of $40.
Preferred Stock: The firm has determined it can issue preferred stock at $75 per share par value. The stock will pay a $
Common Stock: A firm's common stock is currently selling for $18 per share. The dividend expected to be paid at the
last four years. Four years ago, the dividend was $1.50. It is expected that to sell, a new common stock issue must be u

Question 1 Debt Common Stock

nper 12
par value 1000
PV 960
PMT 70
PV 940
Rate 7.79%
4.67%
Preferred PV 75
D 10
NP 72
r 0.138888888888889

Common Stock

Question 2
BONDS nper 20
PMT 90
PV 980 weight
FC 20 0.3
NP 960 0.05
Rate 9.45% after tax ytm 0.056714 0.65
wacc
PS D 8.00
PV 65
FC 3
rr 0.129032258064516

CS D1 5.07
D0 3.45
nper 5
growth rat 8%
PV 40
D 1
FC 1
38
0.213455911466099
owing sources and target market value proportions.

otation cost of

share par value. The stock will pay a $10 annual dividend. The cost of issuing and selling the stock is $3 per share.
e dividend expected to be paid at the end of the coming year is $1.74. Its dividend payments have been growing at a constant rate for the
a new common stock issue must be underpriced $1 per share in floatation costs. Additionally, the firm's marginal tax rate is 40 percent.

Common Stock
PV 18
D1 1.74
growth 3.78%
NP 17
r 14.015%

0.20 4.67% 0.00934

0.10 0.138888888888889 0.01389
0.70 14.015% 0.09811
WACC 0.12134

0.0567144058649456 0.017014
0.129032258064516 0.006452
21.345591146609900% 0.138746
0.162212
e.
at a constant rate for the
al tax rate is 40 percent.