Cost of capital q

1. Using rounded whole percents for the various costs and weighted costs, what is the weighted average
cost of capital for Foggy Futures Weather Forecasters? The firm is in the 40% tax bracket. The
optimal capital structure is listed below:
Source of Capital Weight
Long-Term Debt 25%
Preferred Stock 20%
Common Stock 55%

Debt: The firm can issue $1000 par value, 8% coupon interest bonds with a 20 year
maturity date. The bond has an average discount of 3% and flotation costs of
$4.5% per bond.
Preferred The firm can sell preferred stock with a dividend that is 8% of the current
Stock price. The stock costs $90. The cost of issuing and selling the stock is
expected to be 5% per share.
Common The firm’s common stock is currently selling for $100 per share. The firm
Stock: expects to pay cash dividends of 7% per share next year. The dividends have
been growing at 6%. The stock must be discounted by 2% and flotation costs
are expected to amount to 5% per share.

2. What is the WACC for Foggy Futures Weather Forecasters? The firm is in the 30% tax bracket. The
optimal capital structure is listed below:
Source of Capital Weight
Long-Term Debt 35%
Preferred Stock 15%
Common Stock 50%

Debt: The firm can issue $1000 par value, 8% coupon interest bonds paid semi
annually with a 20 year maturity date. The bond is discount of 3% of par
value and flotation costs of 4%.
Preferred The firm can sell preferred stock with a dividend that is 10% of the current
Stock price. The stock costs $90. The cost of issuing and selling the stock is
expected to be 10% per share.
Common The firm’s common stock is currently selling for $90 per share. The firm
Stock: expects to pay cash dividends of $7 per share next year. The dividends have
been growing at 6%. The stock must be discounted by 5% and flotation costs
are expected to amount to 2% per share.
3. What would be the weighted average cost of capital for Limp Linguini Noodle Makers, Inc. under the
following conditions:
*The capital structure is 40% debt and 60% equity
*The before-tax cost of debt (which includes flotation costs) is 20% and the firm is in the 40% tax bracket.
*The firm’s beta is 1.7
*The risk-free rate is 7% and the market risk premium is 6%

4. What is the cost of preferred stock if the stock is selling for $208, the dividend is $35 and flotation
costs are 5% of the selling price
5. What is the weighted average cost of capital for Mud Bug Corporation?
Source of Capital Capital Components Cost
Long Term Debt $60,000 5.6% AFTER TAX
Preferred Stock $15,000 10.6%
Common Stock $75,000 13.0%
6. Nico Trading Corporation is considering issuing long-term debt. The debt would have a 30 year
maturity and a 10 percent coupon rate. In order to sell the issue, the bonds must be underpriced at a
discount of 5 percent of face value. In addition, the firm would have to pay flotation costs of 5 percent
of face value. The firm's tax rate is 35 percent. Given this information, find the after tax cost of debt
for Nico Trading.

7. Nico Trading Corporation is considering issuing long-term debt. The debt would have a 20 year
maturity and a 8 percent coupon rate. In order to sell the issue, the bonds must be underpriced at a
discount of 4 percent of face value. In addition, the firm would have to pay flotation costs of 5 percent
of face value. The firm's tax rate is 30 percent. Given this information, find the after tax cost of debt
for Nico Trading.

8. Nico Trading Corporation is considering issuing preferred stock. The preferred stock would have a par
value of $75 and a preferred dividend of 7.5 percent of par. In order to issue the stock, Nico trading
would have to pay flotation costs of 6 percent of par value. Given this information, find Nico Trading's
cost of preferred stock .

9. A firm has common stock with a market price of $55 per share and an expected dividend of $2.81 per
share at the end of the coming year. The dividends paid on the outstanding stock over the past five
years are as follows:

Find The cost of the firm's common stock equity.