Company A plans to maintain its optimal capital structure of 40 percent debt, 10 percent preferred stock, and 50 percent common equity. The required return on each component source of capital is given as follows: debt 8.00% and preferred stock 8.60%. Common stock is currently selling for $50 per share, and flotation costs for new common stock will amount to $5 per share. The expected dividend next year for this company is $2.50. Furthermore, dividends are expected to grow at a 6 percent rate far into the future. The corporate tax rate is 34 percent. What is the WACC of this company? A. 8.75% B. There is not enough information to answer this question. C. 9.84% D. 10.00%
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Company A plans to maintain its optimal capital structure of 40 percent debt, 10 percent
| A. |
8.75% |
|
| B. |
There is not enough information to answer this question. |
|
| C. |
9.84% |
|
| D. |
10.00% |
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