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 ratioof 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 constantrate 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'sweighted average cost of capital?

In this we need to calculate the cost of debt and equity and than calculate weighted average cost of…

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

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section2.A: Taxes

Problem 6P

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