Chapter 11 WACC Example

# Chapter 11 WACC Example - Chapter 11 the Cost of capital...

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2/21/11 To raise money for the capital projects, Dell corporation plans the following capital structure: 30% of money will come from issuing bonds, and 70% will come from Retained Earnings or new common stock. Dell does not have preferred stock. Dell can issue bonds with an interest rate of 6%, up to \$20 million dollars. After issuing \$20 million in bonds, the interest cost will rise to 9%. The next dividend on common stock is expected to be \$1.00 per share. The stock price is \$17.00 per share, and is expected to grow at 5% per year. The flotation cost for issuing new common stock is estimated at 15%. Dell Corporation has \$50 million in retained earnings that can be used. The tax rate for Dell is 35%. Problem
2/21/11 What is the initial weighted average cost of capital (WACC) for Dell Corporation? WACC = wd rd(1-T) + wp rp + ws rs

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## This note was uploaded on 02/20/2011 for the course OB 3303 taught by Professor Thomas during the Spring '11 term at Dallas Baptist.

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Chapter 11 WACC Example - Chapter 11 the Cost of capital...

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