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Excel Activity: Calculating the WACC Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars): Skye's earnings per share last year were $2.40. The common stock sells for $50.00, last year's dividend (D0) was $1.50, and a flotation cost of 12% would be requ common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 10%. Skye's preferred stock pays a dividend of $2.50 per preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is 11%, and its marginal tax rate is 25%. The firm's currently outstanding 11% annua long-term debt sells at par value. The market risk premium is 6%, the risk-free rate is 7%, and Skye's beta is 1.732 . The firm's total debt, which is the sum of the short-term debt and long-term debt, equals $1.275 million. The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not r intermediate calculations. Round your answers to two decimal places. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cort of common equity. After-tax cost of debt: \% Cost of preferred stock: Cost of retained earnings: % Cost of new common stock: \% b. Now ealculate the cost of common equity from retalned eamings, using the CAPM method. \%s c. What is the cost of new common stock based on the CAPM) (Hint: Find the difference between rsaad, as determined by the DCF method, and add that differential to the CapM value for rw) d. If Skye continues to use the same market-value capital structure, what is the firm's wACC assuming that ( 1 ) it uses only retained earnings for eouity and ( 2 ) if it expands so rapidy that is must issue new common stock? (hint: Use the market value capital structure exduding current liabilities to determine the weights. Also, use the simple average of the required values obtained under the two methods in calcutating wacC.) WACC 1

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