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Blue Fluff Corporation's CFO needs to estimate the company's WACC in order to apply it to an average-risk project the firm is considering. The...
Blue Fluff Corporation’s CFO needs to estimate the company’s WACC in order to apply it to an average-risk project the firm is considering. The project will cost $8 million. Blue Fluff currently operates at their target capital structure, which is 40% long-term debt, 40% common stock and 20% preferred stock. The company currently has 20-year, 8.5% annual coupon bonds that have a par value of $1,000 and currently sell for $945. The firm’s common stock currently sells for $32 and has a beta of 1.20, the market risk premium is 5% and the risk-free rate is 6%. They have outstanding preferred stock that pays a $2.00 annual dividend and currently sells for $25 a share. The marginal tax rate is 40%.a)
