Related questions with answers
WACC Lancaster Engineering Inc. (LEI) has the following capital structure, which it considers to be optimal:
$\begin{array}{lc} \text{Debt} & 25 \% \\ \text{Preferred stock} & 15 \\ \text{Common equity} & 60 \\ \hline & 100 \% \\ \hline \hline \end{array}$
LEI's expected net income this year is $\$ 34,285.72$; its established dividend payout ratio is $30 \%$; its federalplusstate tax rate is $40 \%$; and investors expect future earnings and dividends to grow at a constant rate of $9 \%$. LEI paid a dividend of $\$ 3.60$ per share last year, and its stock currently sells for $\$ 54.00$ per share. LEI can obtain new capital in the following ways:

New preferred stock with a dividend of $\$ 11.00$ can be sold to the public at a price of $\$ 95.00$ per share.

Debt can be sold at an interest rate of $12 \%$.
Calculate the WACC.
Solution
VerifiedIn this problem, we are required to solve the weighted average cost of capital (WACC) of Lancaster Engineering Inc.
Create a free account to view solutions
Create a free account to view solutions
Recommended textbook solutions
Fundamentals of Corporate Finance
7th Edition•ISBN: 9780078034640 (2 more)Alan J. Marcus, Richard A. Brealey, Stewart C. MyersFundamentals of Financial Management, Concise Edition
9th Edition•ISBN: 9781305635937Eugene F. Brigham, Joel F HoustonMore related questions
1/4
1/7