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vadrian4056
vadrian4056
01.12.2019 • 
Mathematics

“blackfriday” company is planning an expansion of its existing production capacity. the firm hired you as a consultant for the expansion project. since you are a savvy project manager, you first decided to estimate the firm’s cost of capital based on the available data.

data:
tax rate: 40%
bond: coupon rate 12%, maturity years 15, present value $1150
preferred stock: dividend rate 10%, par value $100, present value $111 common stock: market price $50, d0=$4.20, dividend growth 5%, beta 1.2, treasury bond yield 7%, market risk premium 6%. when the firm uses bond-yield+premium method, the risk premium is 4%.
capital structure of abc is as follows;
debt 30%, common equity 60%, preferred stock 10%

next, you asked your assistant “mr.coupon” to give his opinion on the following burning questions;

what sources of capital you should consider for wacc? should the sources be before tax? should the costs be historical?

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