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The CFO of Blue Co. has collected the following information related to the firm’s cost of capital to calculate its weighted average cost of capital: ·       The long-term bonds currently offer a yield to maturity of 8%. ·       The corporate tax rate applicable to Blue co. is 40%. ·       The company recently paid a dividend of P2 a share. ·       Current stock price is P32 per share. ·       The constant dividend growth rate of 6% each year. ·       The company pays a 10% flotation cost for each issuance of new common stock ·       The Blue Co. has a target capital structure of 75% equity funded and 25% debt funded. ·       The firm will be able to use retained earnings to fund the equity portion of its capital budget. What is the Blue Co.’s WACC? a. 10.67% b. 11.22% c. 11.37% d. 10.22%

The CFO of Blue Co. has collected the following information related to the firm’s cost of capital to calculate its weighted average cost of capital: ·       The long-term bonds currently offer a yield to maturity of 8%. ·       The corporate tax rate applicable to Blue co. is 40%. ·       The company recently paid a dividend of P2 a share. ·       Current stock price is P32 per share. ·       The constant dividend growth rate of 6% each year. ·       The company pays a 10% flotation cost for each issuance of new common stock ·       The Blue Co. has a target capital structure of 75% equity funded and 25% debt funded. ·       The firm will be able to use retained earnings to fund the equity portion of its capital budget. What is the Blue Co.’s WACC? a. 10.67% b. 11.22% c. 11.37% d. 10.22%

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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The CFO of Blue Co. has collected the following information related to the firm’s cost of capital to calculate its weighted average cost of capital:

·       The long-term bonds currently offer a yield to maturity of 8%.

·       The corporate tax rate applicable to Blue co. is 40%.

·       The company recently paid a dividend of P2 a share.

·       Current stock price is P32 per share.

·       The constant dividend growth rate of 6% each year.

·       The company pays a 10% flotation cost for each issuance of new common stock

·       The Blue Co. has a target capital structure of 75% equity funded and 25% debt funded.

·       The firm will be able to use retained earnings to fund the equity portion of its capital budget.

What is the Blue Co.’s WACC?

a. 10.67%
b. 11.22%
c. 11.37%
d. 10.22%
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