Your company's stock sells for $50 per share, its last dividend (D0) was $2.00, its growth rate is a constant 5 percent,
Posted: Mon May 02, 2022 9:25 am
Your company's stock sells for $50 per share, its last dividend
(D0) was $2.00, its growth rate is a constant 5 percent, and the
company would incur a flotation cost of 15 percent if it sold new
common stock. Net income for the coming year is expected to be
$500,000 and the firm's payout ratio is 60percent. The firm's
common equity ratio is 30 percent and it has no preferred stock
outstanding. The firm can borrow up to $300,000 at an interest rate
of 7 percent; any additional debt will have an interest rate of 9
percent. Your company's tax rate is 40 percent. If the firm has a
capital budget of$1,000,000, what is the WACC for the last dollar
of capital the company raises?
a. 9.94%
b. 6.76%
c. 11.81%
d. 3.78%
(D0) was $2.00, its growth rate is a constant 5 percent, and the
company would incur a flotation cost of 15 percent if it sold new
common stock. Net income for the coming year is expected to be
$500,000 and the firm's payout ratio is 60percent. The firm's
common equity ratio is 30 percent and it has no preferred stock
outstanding. The firm can borrow up to $300,000 at an interest rate
of 7 percent; any additional debt will have an interest rate of 9
percent. Your company's tax rate is 40 percent. If the firm has a
capital budget of$1,000,000, what is the WACC for the last dollar
of capital the company raises?
a. 9.94%
b. 6.76%
c. 11.81%
d. 3.78%