Question: Bane Industries has a capital structure consisting of 60 percent
Bane Industries has a capital structure consisting of 60 percent common stock and 40 percent debt. The firm’s investment banker has advised the firm that debt issued with a $1,000 par value, 8 percent coupon (interest paid semiannually), and maturing in 20 years can be sold today in the bond market for $1,100. Common stock of the firm is currently selling for $80 per share. The firm expects to pay a $2 dividend next year. Dividends have grown at the rate of 8 percent per year and are expected to continue to do so for the foreseeable future. What is Bane’s weighted average cost of capital where the firm faces a tax rate of 34 percent?
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