14-10 Aceline Corporation is currently all-equity financed, with a cost of capital of 15% and a firm value of $10 million. The company is considering a $3 million debt issue at an 8% interest rate. The money raised will be used to repurchase shares. The company’s marginal tax rate is 35%. According to the M&M Proposition, what is Aceline’s WACC after the debt issue? Select one: a. 13.09% b. 13.57% c. 14.10% d. 15.00% e. 16.70
Dividend Policy
A dividend is a part of the profit paid to the shareholder in an organization. The management of the organization has the right to decide the policy for giving a dividend from the earnings to the shareholder. However, an organization is not in the obligation to declare a dividend for the investor. Dividend policy differs from organization to organization. As the management has the only authority to decide dividend rate, dividend amount, and time of dividend payout by considering all other elements that create an impact on the payment of a dividend.
Stocks And Dividends
Stock or equities are generally sold and bought in the Stock Exchange or which is popularly known as the stock market. Stocks are issued in the Stock Exchange for the sole purpose of raising funds for the Corporation or the company itself. Now since an individual has purchased a portion of the Corporation or company, he or she may claim to be a part of the earnings or profit of the company.
14-10
Aceline Corporation is currently all-equity financed, with a cost of capital of 15% and a firm value of $10 million. The company is considering a $3 million debt issue at an 8% interest rate. The money raised will be used to repurchase shares. The company’s marginal tax rate is 35%. According to the M&M Proposition, what is Aceline’s WACC after the debt issue?
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