Assume that in the optimal capital structure: wD = 40%, wC = 50%, wP = 10%. Of the 50% that comes from common stock 80% will be generated internally through retained earnings; 20% through newly issued equity. Now we just have to estimate the costs of the individual funding sources, the rates. The marginal corporate tax rate is 30%. Use the following information to find rates: If new debt were issued it would have a coupon rate of 9%, a maturity of 10 years, and a face value of Tshs 1,000. It is expected that since investor's opportunity cost i. is also 9%, that the new debt could be sold at face value. Issue costs are Tshs 30/share. ii. Newly issued preferred stock would have a par value of Tshs 50, a dividend of Tshs 6/share, and flotation costs of Tshs 1.75/share. Assume that this newly issued preferred stock would be issued at par. ii. The firm just issued a Tshs 5 dividend. Dividends are expected to grow at a rate of 10%/year, indefinitely. The current market price of common stock is Tshs 50. Flotation costs on newly issued common stock will be 5% of issue price Calculate WACC
Assume that in the optimal capital structure: wD = 40%, wC = 50%, wP = 10%. Of the 50% that comes from common stock 80% will be generated internally through retained earnings; 20% through newly issued equity. Now we just have to estimate the costs of the individual funding sources, the rates. The marginal corporate tax rate is 30%. Use the following information to find rates: If new debt were issued it would have a coupon rate of 9%, a maturity of 10 years, and a face value of Tshs 1,000. It is expected that since investor's opportunity cost i. is also 9%, that the new debt could be sold at face value. Issue costs are Tshs 30/share. ii. Newly issued preferred stock would have a par value of Tshs 50, a dividend of Tshs 6/share, and flotation costs of Tshs 1.75/share. Assume that this newly issued preferred stock would be issued at par. ii. The firm just issued a Tshs 5 dividend. Dividends are expected to grow at a rate of 10%/year, indefinitely. The current market price of common stock is Tshs 50. Flotation costs on newly issued common stock will be 5% of issue price Calculate WACC
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question 13 (Group 12 & Group 4 [Accl)
Assume that in the optimal capital structure: wD = 40%, wC = 50%, wP = 10%. Of the 50%
that comes from common stock 80% will be generated internally through retained earnings;
20% through newly issued equity. Now we just have to estimate the costs of the individual
funding sources, the rates. The marginal corporate tax rate is 30%.
Use the following information to find rates:
If new debt were issued it would have a coupon rate of 9%, a maturity of 10 years,
i.
and a face value of Tshs 1,000. It is expected that since investor's opportunity cost
is also 9%, that the new debt could be sold at face value. Issue costs are Tshs
30/share.
Newly issued preferred stock would have a par value of Tshs 50, a dividend of Tshs
6/share, and flotation costs of Tshs 1.75/share. Assume that this newly issued
preferred stock would be issued at par.
The firm just issued a Tshs 5 dividend. Dividends are expected to grow at a rate of
10%/year, indefinitely. The current market price of common stock is Tshs 50.
Flotation costs on newly issued common stock will be 5% of issue price
ii.
Calculate WACC
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