Solid Structures, Inc., a manufacturer of steel wire reinforcements and pre-stressed concrete strands for the concrete...

Solid Structures, Inc., a manufacturer of steel wire reinforcements and pre-stressed concrete strands for the concrete construction industry, wants to determine its WACC. Today, 1/1/2018, the firm issued 8,000 bonds that will mature in 1/1/2033 with $1,000 face value. These bonds will pay a 8% coupon rate quarterly and are currently selling for $945. The firm has 100,000 preferred shares of stock outstanding with a book value of $40 per share, but currently selling for $50 per share. The most recent preferred and common dividends were $3 and $2.5 per share, respectively. The firm’s EPS five years ago was $7.00 and it expects to increase its next dividend payment by the implied 5-year earnings per share growth rate. Flotation costs on debt, preferred equity and common equity are $30, $4, and $5 per share. The common stock is selling today for $60 with book value of $45 per share, and the firm’s tax rate and payout ratio are 40% and 25%, respectively. The firm has 200,000 shares of common stock outstanding.

Calculate the book value and market value weights for each source of capital.
Calculate the component costs of capital (i.e., debt, preferred equity, retained earnings, and new common equity).
Determine the WACC with retained earnings, and WACC with common stock using both the market and the book value weights.

Expert Solution

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jeff jeffy answered 1 year ago

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