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Chapter 16
9. Finding the WACC. Monica is the CFO of Cooking for Friends (CFF) and uses the
pecking order hypothesis (POH) philosophy when she raises capital for company
projects. Currently, she can borrow up to $600,000 from her bank at a rate of 8.5%, float
a bond for $1,100,000 at a rate of 9.25%, or issue additional stock for $1,300,000 at a
cost of 17%. What is the WACC for CFF if Monica chooses to invest: a. $1,000,000 in
new projects? b. $2,000,000 in new projects? c. $3,000,000 in new projects?
10. Finding the WACC. Chandler has been hired by Cooking for Friends to raise capital
for the company. Chandler increases the funding available from the bank to $900,000, but
with a new rate of 8.75%. Using the data in Problem 9, determine what the new weighted
average cost of capital is for borrowing $1,000,000, $2,000,000, or $3,000,000
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FIN 419 Week 5 DQ 1
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What is the SEC?
How does it impact financial decision-making?
What constraints might it put on a company?
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FIN 419 Week 5 DQ 2