Equity dollars of financing, business and finance homework help
Equity dollars of financing, business and finance homework help
The weighted average cost of capital formula (WACC) shown below is the accepted method of computing a firm’s cost of capital.
WACCadj =
E x Re + PS x Rps + D x Rd X (1 – Tc) V V V
Where:
E = Equity dollars of financing
PS = Preferred Stock dollars of financing
D = Debt (bond) dollars of financing
V = Total financing = E +PS +D
Re = % Cost of Common Stock
Rps = % Cost of Preferred Stock
Rd = % Cost of Debt after tax
Tc = Effective tax rate
After reviewing this formula, your reading assignments and the instructor’s PowerPoint presentation, in a one paragraph posting, answer the following questions and provide a short supporting rationale for each answer. The answer does not require a quantitative solution What impact will the following company actions have on the company’s weighted average cost of capital (WACC):
1. An Increase in the company’s corporate tax rate?
2. An Increase in the company’s flotation cost?
3. An increase in the company’s dividend?
Can you demonstrate your answer mathematically?