FIN 419 Expect Success/uophelp.com FIN 419 Expect Success/uophelp.com | Page 30

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
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