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on this year. The annual yield on the company's debt is 7% an amon stock trades at Po = $100 per share, and its current dividend of Do = $4 per sha rear. The floatation cost of external equity, if issued, is F = 1.5% of the dollar amc ost of capital? %3D

on this year. The annual yield on the company's debt is 7% an amon stock trades at Po = $100 per share, and its current dividend of Do = $4 per sha rear. The floatation cost of external equity, if issued, is F = 1.5% of the dollar amc ost of capital? %3D

Essentials Of Investments
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
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b. ABC Inc. finances its operations with 40 percent debt and 60 percent equity. Its net income is $30 million and it has a dividend payout ratio of 30%. Its capital budget is B = $100 million this year. The annual yield on the company's debt is 7% and the company's tax rate is T = 30%. The company's common stock trades at Po = $100 per share, and its current dividend of Do = $4 per share is expected to grow at a constant rate of g = 5% a year. The floatation cost of external equity, if issued, is F = 1.5% of the dollar amount issued. What is the company's weighted average cost of capital?
Transcribed Image Text:b. ABC Inc. finances its operations with 40 percent debt and 60 percent equity. Its net income is $30 million and it has a dividend payout ratio of 30%. Its capital budget is B = $100 million this year. The annual yield on the company's debt is 7% and the company's tax rate is T = 30%. The company's common stock trades at Po = $100 per share, and its current dividend of Do = $4 per share is expected to grow at a constant rate of g = 5% a year. The floatation cost of external equity, if issued, is F = 1.5% of the dollar amount issued. What is the company's weighted average cost of capital?
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In this we need to calculate the cost of debt and equity and than calculate weighted average cost of capital.

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