Midac Corporation wants to arrange for $50 million in capital to finance the manufacturing of a new consumer product. The current plan is 60% equity capital and 40% debt financing. Calculate the WACC for the following scenario:
Equity capital: 60%, or $35 million, via common stock sales for 40% of this amount that will pay dividends at a rate of 5% per year, and the remaining 60% from retained earnings, which currently earn 9% per year.
Debt capital: 40%, or $15 million, obtained through two sources-bank loans for $10 million borrowed at 8% per year, and the remainder in convertible bonds at an estimated 10% per year bond dividend rate.
This question was answered on: Jul 11, 2017
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