# Calculation Of Weighted Average Cost Of Capital

Question

Assume FCFLMNO = \$100,000,000 for 2013.  The company’s annual growth rate in its FCFs is 5%.  The company employs the three major capital components (equity, debt, and preferred stock) to finance itself.  The company is targeting a distribution in the three capital components of Ws = 45%, Wd = 45%, Wps = 10%.  LMNO’s last period dividend was \$4.00.  Simultaneously, in the stock market, the E(RM) = 7%, σLMNO,M = 0.0025, and σM = 0.05.  Also, RF = 3%.  On the preferred stock for LMNO, the Dps = \$15.00 and its preferred stock is trading at \$150.  In thousand dollar units, LMNO’s current 10-year, 10% coupon debt with an annual coupon \$100 (i.e. compounded annually) is trading at \$887.  Finally, LMNO’s τ = 30%.  First, find the WACCLMNO?  Second, if LMNO is a constant growth perpetuity, estimate its value?

Summary

The question belongs to Finance and it is about calculating weighted average cost of capital for a company with an annual growth rate of FCF is 5% and the company is targeting a distribution in three capital components, the value of the company needs to estimated.

Total Word Count 423

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