Assume that you are the financial staff of Vanderheiden Inc., and you have collected the following data: the yield on the company's outstanding bonds is 7.75%, its tax rate is 40%, the next expected dividend is P0.65 a share, the dividend is expected to grow at a constant rate of 6.00% a year, the price of the stock is P15.00 per share, the flotation cost for selling new shares is F = 10%, and the target capitàl structure is 45% %3D debt and 55% common equity. What is the firm's WACC, assuming it must issue new stock to finance its capital budget?
Assume that you are the financial staff of Vanderheiden Inc., and you have collected the following data: the yield on the company's outstanding bonds is 7.75%, its tax rate is 40%, the next expected dividend is P0.65 a share, the dividend is expected to grow at a constant rate of 6.00% a year, the price of the stock is P15.00 per share, the flotation cost for selling new shares is F = 10%, and the target capitàl structure is 45% %3D debt and 55% common equity. What is the firm's WACC, assuming it must issue new stock to finance its capital budget?
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:Assume that you are the financial staff of Vanderheiden Inc., and you have collected
the following data: the yield on the company's outstanding bonds is 7.75%, its tax
rate is 40%, the next expected dividend is P0.65 a share, the dividend is expected to
grow at a constant rate of 6.00% a year, the price of the stock is P15.00 per share, the
flotation cost for selling new shares is F = 10%, and the target capitàl structure is 45%
debt and 55% common equity. What is the firm's WACC, assuming it must issue new
stock to finance its capital budget?
6.89%
O 7.26%
8.04%
O 7.64%
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