Question

Tapley, Inc. can raise up to $5M in new debt at a before-tax cost of 8%. If more debt is required, the initial cost will be 8.5%, and if more than $10M of debt is required, the cost will be 9%.

Tapley has $6.6M in retained earnings. The firm has a flotation expense of 10% when it raises up to $2M in the external equity markets, the flotation costs are 15% above $2M to $4M in the external equity markets, and the flotation expense is 20% above $4M for new outside equity.

Tapley has determined that they may raise: $5M at a debt cost of 8%; above $5M to $10M at a debt cost of 8.5%, and; above $10M at a debt cost of 9%

Tapley has a stock price of $88/share, a current dividend of $4/share, and a growth rate of 10%. Additionally, the flotation expenses it faces in the external markets will be tiered based on the volume of stock it sells and they range from a low of 10% to a middle cost of 15% to a high cost of 20%.

BP_{Debt 1} =$8.33M

BP_{Debt 2} =$16.67M

BP_{New Equity 1} =16.5M

BP_{New Equity 2} =$21.5M

BP_{New Equity 3} =$26.5M

After-tax Cost of Debt with a before tax cost of debt of 8%=5.6%

After-tax Cost of Debt with a before tax cost of debt of 9%=6.3%

After-tax Cost of Debt with a before tax cost of debt of 10%=7.0%

Cost of Equity for Retained Earnings =15%

Cost of Equity with a 10% flotation expense=15.56%

Cost of Equity with a 15% flotation expense =15.88%

Cost of Equity with a 20% flotation expense =16.25%

With all of the data above, please calculate (Show your Work):

WACC₁ =

WACC₂ =

WACC₃ =

WACC₄ =

WACC₅ =

WACC₆ =

Answer 1

	Weighted Average Cost of Capital =WACC
	WACC=(Weight of Debt*Cost of Debt)+(Weight of Retained Earnings*Cost of Retained Earnings)+(Weight of Equity* Cost of Equity)
		Md	Mr	Me	M=Md+Mr+Me	Wd=Md/M	Wr=Mr/M	We=Me/M
		($ million)
		Total Debt	Retained Earnings	Equity	Total Capital	Weight of Debt	Weight of Retained Earnings	Weight of Equity
	WACC1	$8.33	$6.60	$16.50	$31.43	0.26503341	0.2099905	0.5249761
	WACC2	$8.33	$6.60	$21.50	$36.43	0.2286577	0.1811694	0.5901729
	WACC3	$8.33	$6.60	$26.50	$41.43	0.20106203	0.1593049	0.6396331
	WACC4	$16.67	$6.60	$16.50	$39.77	0.41916017	0.1659542	0.4148856
	WACC5	$16.67	$6.60	$21.50	$44.77	0.37234755	0.1474201	0.4802323
	WACC6	$16.67	$6.60	$26.50	$49.77	0.33494073	0.13261	0.5324493
	Assume Tax Rate =T
	8*(1-T)=5.6
	T=(8-5.6)/8=	0.3
	Tax Rate =0.3=30%
	Aftert tax cost if before tax cost is 8.5%=	5.95%	8.5*(1-0.3)
	WACC1
		Weight	Cost	Weight*Cost
	Debt	0.2650334	5.95%	1.58%
	Retained Earnings	0.2099905	15%	3.15%
	Equity	0.5249761	16.25%	8.53%
			SUM	13.26%
	WACC1=SUM=	13.26%
	WACC2
		Weight	Cost	Weight*Cost
	Debt	0.2286577	5.95%	1.36%
	Retained Earnings	0.1811694	15%	2.72%
	Equity	0.5901729	16.25%	9.59%
			SUM	13.67%
	WACC2=SUM=	13.67%
	WACC3
		Weight	Cost	Weight*Cost
	Debt	0.201062	5.95%	1.20%	jeff jeffy Next > < Previous Related Solutions To calculate the after-tax cost of debt, multiply the before-tax cost of debt by   . Perpetualcold... To calculate the after-tax cost of debt, multiply the before-tax cost of debt by   . Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 11.10% for a period of four years. Its marginal federal-plus-state tax rate is 25%. PRC’s after-tax cost of debt is     (rounded to two decimal places). At the present time, Perpetualcold Refrigeration Company (PRC) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price... A. The (before-tax cost of debt/after-tax cost of debt) is the interest rate that a firm... A. The (before-tax cost of debt/after-tax cost of debt) is the interest rate that a firm pays on any new debt financing. B. Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 11.10% for a period of four years. Its marginal federal-plus-state tax rate is 45%. PRC’s after-tax cost of debt is (6.11%/7.03%/5.80%/6.72%) (rounded to two decimal places). C. At the present time, Perpetualcold Refrigeration Company (PRC) has 10-year noncallable bonds with a face value of $1,000... What is the before-tax cost of debt for Timberton's new bond issue selling for $850? The... What is the before-tax cost of debt for Timberton's new bond issue selling for $850? The bonds mature in 20 years, pay annual interest on face value of $1,000 and the coupon rate is 8%, Question 28 options: 12.35% 7.83% 10.47% 9.73% 1. Do we focus on after-tax cost of debt or before-tax cost of debt? Do we... 1. Do we focus on after-tax cost of debt or before-tax cost of debt? Do we focus on new costs of debt or historical costs of debt? Why? 2. How to adjust component cost of debt, preferred stock, common stock for flotation costs? 3. When we calculate WACC, do we consider such current liabilities as accounts payable, accruals, and deferred taxes as sources of funding? Why? Discuss factors that managers consider before they want to raise new capital be it debt or... Discuss factors that managers consider before they want to raise new capital be it debt or euqity (500Words) Give some advantages of equity capital over debt (400words) Thank You Before-tax cost of debt and? after-tax cost of debt??Personal Finance Problem???David Abbot is interested in purchasing... Before-tax cost of debt and? after-tax cost of debt??Personal Finance Problem???David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the? security: Sony Bond Par value ? $1000 Coupon interest rate Corporate tax rate 5.5?% 35?% Cost????????? Years to maturity 10?? ?$910 Answer the following? questions: a.??Calculate the ?before-tax cost of the Sony bond using the? bond's yield to maturity? (YTM). b.??Calculate the ?after-tax cost of the Sony bond given the corporate... ABC Company has a before-tax cost of debt of 5.94%. The cost of equity of an... ABC Company has a before-tax cost of debt of 5.94%. The cost of equity of an unlevered firm (Note: cost of equity of unlevered firm = return on assets = cost of capital of the firm's assets = RA) is 17.14%. The D/E ratio is 1.13. What is the cost of equity? Assume a tax rate of 27.4%. Enter your answer as a percentage rounded off to two decimal points. Do not enter % in the answer box. if before tax cost of debt rd = 0.12, tax rate (T)=35%, what is the after... if before tax cost of debt rd = 0.12, tax rate (T)=35%, what is the after tax cost of debt?   Innovation Co.is thinking about marketing a new software product. The initial set-up cost is$5M (and is... Innovation Co.is thinking about marketing a new software product. The initial set-up cost is$5M (and is paid at t=0).At the end of every year for the next 10 years (i.e., at t=1,2,...,10), the productwill generate revenueof$1M.Afterthat,the product will be outdated and will not be offered in the market anymore.However,the company will have to provide customer supportin perpetuity, which will cost $0.1M at the end of everyyear (i.e., at t=1,2,...,∞).The cost of capital is10%and there is annual compounding frequency. What is... Q6. If a firm’s before-tax cost of debt is 10% and the firm has a 10%... Q6. If a firm’s before-tax cost of debt is 10% and the firm has a 10% marginal tax rate, what is the firm’s after-tax cost of debt? 6.5% 3.5% 9.0% 7.9% Q7. A company has preferred stock that can be sold for $100 per share. The preferred stock pays an annual dividend $6. Therefore, the cost of preferred stock is: 4.0% 5.0% 6.0% 10.0% Q8. Suppose your company has an equity beta of 1.5 and the current risk-free rate is... ADVERTISEMENT Subjects Accounting Advanced Math Anatomy and Physiology Biology Chemistry Civil Engineering Computer Science Economics Electrical Engineering Finance History Math Mechanical Engineering Operations Management Physics Psychology Statistics and Probability Nursing Other ADVERTISEMENT Latest Questions Draw a DFA for the following ( ∑ = {0,1}):                                 Set of all strings with. In the article from Forbes notes that the goal of a leader is not to clone... Many people keep time using a 24 hour clock (11 is 11am and 23 is 11pm,... UNIX ONLY -- DIFFICULT LAB ASSIGNMENT This is an extremely difficult subject for me. Could you... Do you know why your credit card can be refused even though you are profitable? The Following Java expression: S/10 * 10 + 10 – S = C Show that this... Year Cash Flow 0 −$9,700           1 5,800           2 2,500           3 3,400      &nb ADVERTISEMENT About @ 2020 WizEdu