Phase 3 Cost of Capital - WACC Market Interest Rate a) What is the market interest rate on UPC's debt and its component cost of debt? Coupon rate 6% Coupons per year 1 Years to Maturity 15 Price...

Review the WACC calculations in the attached Excel file. In your own words, do the following:

• Explain the steps for deriving the WACC.


• Discuss the challenges involved in deriving the WACC.


• Rank and discuss other capital project evaluation techniques, and explain the reasoning behind your ranking.

400-600 words with references


Phase 3 Cost of Capital - WACC Market Interest Rate a) What is the market interest rate on UPC's debt and its component cost of debt? Coupon rate6% Coupons per year1 Years to Maturity15 Price$10,153.72 Face value$10,000 Tax rate30% N15 PV$10,153.72 PMT$600 FV$10,000 B-T rd5.8%Market Interest Rate A-T rd4.1%Cost of Debt Cost of Preferred Stock b) What is UPC's cost of preferred stock? Nominal dividend rate8% Dividends per year4 Par value$100 Price$111.10 rp7.20%Cost of Preferred Stock Cost of Common Stock c) What is UPC’s estimated cost of common equity using the CAPM approach? β1.2Beta rRF7%Risk Free Rate RPM6%Market Risk Premium rS 14.20%Cost of Common Stock Discounted Cash Flow Approach (DCF) d) What is the estimated cost of common equity using the DCF approach? Price$100 Current dividend$10.00 Constant growth rate5% D1 $10.45Dividend after Year 1 rs 14.95%Cost of Common Stock Cost of Common Stock e) What is the bond-yield-plus-risk-premium estimate for UPC’s cost of common equity? "Bond yield + RP" premiumGiven RP =3% ks =8.84% PART G f) What is your final estimate for rs? METHODESTIMATE CAPM14.20% DCF14.95% rd + RP8.84% Average12.66% WACC g) What is UPC’s overall, or weighted average cost of capital (WACC)? Structure wd30%A-T rd4.09% wp10%rp7.20%WACC =9.55% ws60%rs12.66%