a. ABC Inc. finances its operations with 40 percent debt and 60 percent equity. Its net...

 

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a. 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 25%. Its capital budget is B = $15 million this year. The annual yield on the company's debt is 8% and the company's tax rate is T = 30%. The company's common stock trades at Po = $55 per share, and its current dividend of Do = $5 per share is expected to grow at a constant rate of g = 5% a year. The floatation cost of external equity, if it is issued, is F = 3% of the dollar amount issued. What is the company's weighted average cost of capital? b. ABC Inc. finances its operations with 40 percent debt and 60 percent equity. Its net income is $16 million and it has a dividend payout ratio of 30%. Its capital budget is B = $40 million this year. The annual yield on the company's debt is 8% and the company's tax rate is T 30%. The company's common stock trades at Po = $75 per share, and its current dividend of Do = $5 per share is expected to grow at a constant rate of g = 5% a year. The floatation cost of external equity, if it is issued, is F = 3% of the dollar amount issued. What is the company's weighted average cost of capital? a. 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 25%. Its capital budget is B = $15 million this year. The annual yield on the company's debt is 8% and the company's tax rate is T = 30%. The company's common stock trades at Po = $55 per share, and its current dividend of Do = $5 per share is expected to grow at a constant rate of g = 5% a year. The floatation cost of external equity, if it is issued, is F = 3% of the dollar amount issued. What is the company's weighted average cost of capital? b. ABC Inc. finances its operations with 40 percent debt and 60 percent equity. Its net income is $16 million and it has a dividend payout ratio of 30%. Its capital budget is B = $40 million this year. The annual yield on the company's debt is 8% and the company's tax rate is T 30%. The company's common stock trades at Po = $75 per share, and its current dividend of Do = $5 per share is expected to grow at a constant rate of g = 5% a year. The floatation cost of external equity, if it is issued, is F = 3% of the dollar amount issued. What is the company's weighted average cost of capital?

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