Answer 789 with solution

7. Baratu desires to open a new plant that will require an investment of P5million. The firm has decided to finance the plant with a new issue preferred stock. Baratu's preferred stock outstanding that pays a dividend of P2.50 per share and which is trading for P35 per share. The investment banker has advised that cost of the newly issued preferred stock would be 7.7%. How much are the investment bankers charging in flotation costs? 8. Pita Corp. wants to calculate its weighted average cost of capital. The company's CFO has collected the following information: * Dividend paid recently .......P2.00 per share Growth rate 6% * Stock price ............ P 32.00 per share Flotation cost 10% * Bond YTM ............. 9% * Tax rate 30% * Target capital structure: 75% Equity; 25% Debt * 60% of the equity funds from retained earnings and 40% new stock issuances. What is the company's WACC? 9. Fether Foods is interested in calculating its weighted average cost of capital. The company's CFO has collected the following information: - The target capital structure consists of 60% debt and 40% common stock - The company has a 15-year noncallable bonds with a par value of P1,000, a 11% annual coupon, and is selling now at 92-3/4. - Equity flotation costs are 2% of par value - The company's common stock has a beta of 0.80 - The risk-free rate is 5%; and market risk premium is 4% - The company's tax rate is 40%