Calculate the weighted average cost of capital (WACC) of company ABC Inc., if: I. The company’s current capital structure consists of 35% from a long-term corporate bond, 30% from new common stock to be issued in the coming months, 20% from retained earnings and the rest is financed by a bank loan. The corporate tax rate is 35%. II. The company’s cost of debt from the bond issuance is 9% and from the bank loan is 8%. III. The current stock price of common stock is €10, the current dividend (Do) is €0.80 per share and dividends are expected to grow by 2% per year. New common stock flotation costs stand at 3% of the current stock price.
Calculate the weighted average cost of capital (WACC) of company ABC Inc., if: I. The company’s current capital structure consists of 35% from a long-term corporate bond, 30% from new common stock to be issued in the coming months, 20% from retained earnings and the rest is financed by a bank loan. The corporate tax rate is 35%. II. The company’s cost of debt from the bond issuance is 9% and from the bank loan is 8%. III. The current stock price of common stock is €10, the current dividend (Do) is €0.80 per share and dividends are expected to grow by 2% per year. New common stock flotation costs stand at 3% of the current stock price.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Calculate the weighted average cost of capital (WACC) of company ABC Inc., if: I. The company’s current capital structure consists of 35% from a long-term corporate bond, 30% from new common stock to be issued in the coming months, 20% from
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