Finance Assignment Example | Topics and Well Written Essays - 500 words

Finance - Assignment Example d) A separate WACC should be calculated based on the project and the costs of the different components of capital and the percentage of each component of capital that is used. Therefore, different weights would be used based on the weights expected to be used for the relevant project Question 2 – Component Cost of Preferred stock a) Western can deduct interest on its debt while there are no similar deductions for dividends. This is so because interest is allowable as a deduction for tax purposes while dividends on common or preferred stocks are not allowable as deductions for tax purposes. b) Given the difference in bond ratings between the utility subsidiaries and the unregulated subsidiary the various units have different costs of preferred stock. The one with the higher bond rating would have the lower cost and the one with the lower bond rating the highest cost. The utility subsidiaries and the unregulated subsidiaries would have different levels of operating risks c) The value at close should be used or the average of the highest and the lowest bid..