calculating WCC

Sheet1

Calculating the WACC
Skye Computer Company: Balance Sheet as of December 31
(in thousands of dollars)
	2021
Current assets	$2,000
Net fixed assets	3,000
Total assets	$0
Accounts payable and accruals	$700
Short-term debt	200
Long-term debt	1,850
Preferred stock	400
Common stock	900
Retained earnings	950
Total common equity	$0
Total liabilities and equity	$0
Last year's earnings per share	$2.60
Current price of common stock, P0	$50.00
Last year's dividend on common stock, D0	$1.70
Growth rate of common dividend, g	10%
Flotation cost for common stock, F	11%
Common stock outstanding	40,000
Current price of preferred stock, Pp	$30.00
Dividend on preferred stock, Dp	$2.70
Preferred stock outstanding	15,000
Before-tax cost of debt, rd	10%
Market risk premium, rM - rRF	5%
Risk-free rate, rRF	6%
Beta	1.384
Tax rate	25%
Total debt	$2,050	thousand
a. Calculating the cost of each capital component (using the DCF method to find
the cost of common equity)				Formulas
After-tax cost of debt				ERROR:#N/A
Cost of preferred stock				ERROR:#N/A
Cost of retained earnings				ERROR:#N/A
Cost of new common stock				ERROR:#N/A
b. Calculating the cost of common equity from retained earnings, using the CAPM method
Cost of retained earnings				ERROR:#N/A
c. Calculating the cost of new common stock based on the CAPM
Flotation cost adjustment				ERROR:#N/A
Cost of new common stock				ERROR:#N/A
d. Calculating the firm's WACC assuming that (1) it uses only retained earnings for equity and
(2) if it expands so rapidly that it must issue new common stock
	Market value (in thousands)	Weight		Market value (in thousands)	Weight
Total debt				ERROR:#N/A	ERROR:#N/A
Preferred stock				ERROR:#N/A	ERROR:#N/A
Сommon equity				ERROR:#N/A	ERROR:#N/A
Total				ERROR:#N/A	ERROR:#N/A
WACC1				ERROR:#N/A
WACC2				ERROR:#N/A