The capital structure for Magellan Corporation is shown below. Currently, flotation costs are 13% of market value for a new bond issue and $3 per share for preferred stock. The dividends for common stock were $2.50 last year and have an estimated annual growth rate of 6%. Market prices are $1,020 for bonds, $20 for preferred stock, and $30 for common stock. Assume a 34% tax rate.
Financing Type
% of Future
Financing
Bonds (8%, $1k par, 16 year maturity)
36%
Common equity
45%
Preferred stock (5k shares outstanding, $50 par, $1.50 dividend)
19%
Total %
100%
Compute the company’s WACC. Is this WACC considered reasonable given the assumptions and other relevant information? Explain.
Already registered? Login
Not Account? Sign up
Enter your email address to reset your password
Back to Login? Click here