Question 13 (Group 12 & Group 4 [Accl)Assume that in the optimal capital structure: wD = 40%, wC = 50%, wP = 10%. Of the 50%that comes from common stock 80% will be generated internally through retained earnings;20% through newly issued equity. Now we just have to estimate the costs of the individualfunding sources, the rates. The marginal corporate tax rate is 30%.Use the following information to find rates:If new debt were issued it would have a coupon rate of 9%, a maturity of 10 years,i.and a face value of Tshs 1,000. It is expected that since investor's opportunity costis also 9%, that the new debt could be sold at face value. Issue costs are Tshs30/share.Newly issued preferred stock would have a par value of Tshs 50, a dividend of Tshs6/share, and flotation costs of Tshs 1.75/share. Assume that this newly issuedpreferred stock would be issued at par.The firm just issued a Tshs 5 dividend. Dividends are expected to grow at a rate of10%/year, indefinitely. The current market price of common stock is Tshs 50.Flotation costs on newly issued common stock will be 5% of issue priceii.Calculate WACC

The concept of the weighted average Cost of Capital (WACC) explains the total cost a firm pays to…

Assume that in the optimal capital structure: wD = 40%, wC = 50%, wP = 10%. Of the 50% that comes from common stock 80% will be generated internally through retained earnings; 20% through newly issued equity. Now we just have to estimate the costs of the individual funding sources, the rates. The marginal corporate tax rate is 30%. Use the following information to find rates: If new debt were issued it would have a coupon rate of 9%, a maturity of 10 years, and a face value of Tshs 1,000. It is expected that since investor's opportunity cost i. is also 9%, that the new debt could be sold at face value. Issue costs are Tshs 30/share. ii. Newly issued preferred stock would have a par value of Tshs 50, a dividend of Tshs 6/share, and flotation costs of Tshs 1.75/share. Assume that this newly issued preferred stock would be issued at par. ii. The firm just issued a Tshs 5 dividend. Dividends are expected to grow at a rate of 10%/year, indefinitely. The current market price of common stock is Tshs 50. Flotation costs on newly issued common stock will be 5% of issue price Calculate WACC

Assume that in the optimal capital structure: wD = 40%, wC = 50%, wP = 10%. Of the 50% that comes from common stock 80% will be generated internally through retained earnings; 20% through newly issued equity. Now we just have to estimate the costs of the individual funding sources, the rates. The marginal corporate tax rate is 30%. Use the following information to find rates: If new debt were issued it would have a coupon rate of 9%, a maturity of 10 years, and a face value of Tshs 1,000. It is expected that since investor's opportunity cost i. is also 9%, that the new debt could be sold at face value. Issue costs are Tshs 30/share. ii. Newly issued preferred stock would have a par value of Tshs 50, a dividend of Tshs 6/share, and flotation costs of Tshs 1.75/share. Assume that this newly issued preferred stock would be issued at par. ii. The firm just issued a Tshs 5 dividend. Dividends are expected to grow at a rate of 10%/year, indefinitely. The current market price of common stock is Tshs 50. Flotation costs on newly issued common stock will be 5% of issue price Calculate WACC

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter12: Capital Structure

Section: Chapter Questions

Problem 7PROB

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