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Microsoft is considering changing its capital structure, in light of the tough business environment.
Currently, MSFT’s total capital consists of:
$950 million in debt
$20 million in leased assets
$500 million of preferred stock
$900 million in common stock
$750 million in retained earnings
The debt coupon is 8% and tax rate is 40% while the current preferred share price is $96.20 and the dividends per share is $9.
The company's common stock is trading at $25.50, it's dividend payout this year is $1.15 the growth rate of the dividend is 8.5%.
Leases are at an average cost of 8%.
a. Find the weighted average cost of capital given the data above
b. If Microsoft wants to change its capital structure (i.e., lower their WACC), what should it do?