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A company’s Balance Sheet (in millions) Assets Liabilities & Equity Current $30 Net Fixed $70 Bonds ($1000 Par) 50 Preferred stocks ($100 Par) 10 Total $100 Common Stock ($1 par) 40 Total $100 The company’s bonds have 12 years to mature, pay 8% coupon rate semi-annually and comparable bonds’ YTM is 10%. The market price of common stock is $6.00 per share. The company’s applicable tax rate is 35%. The common stock dividend has grown at a steady rate from $0.58 in December 1990 to $1.2 in December 2000. The same growth rate is expected to continue for long time in the future. The floatation cost for new common stocks is 10%. The market value of the preferred stock is $65 and it pays quarterly dividend of $1.25. The floatation cost on issuing new preferred stock is 5% Next year is 2001. What is the market value of debt’s weight? What is the market value of equity’s weight? What is the market value of preferred stock’s weight? What is the cost of issuing new common stock? What is the cost of issuing new preferred stock? What is the WACC of the company using the market weights of capital structure? Calculate the WACC of this company assuming that it will issue new common stocks in 2001.


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