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...


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.




Jun 09, 2022
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