Given the following information: Interest rate Tax rate Dividend 9% 30% $2.50 Common stock on the...

 

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Given the following information: Interest rate Tax rate Dividend 9% 30% $2.50 Common stock on the market $50 Growth rate Debt ratio 8% 40% a. Determine the firm's weighted average cost of capital. b. If the debt ratio rises to 50 percent and the cost of funds remains the same, what is the new weighted average cost of capital? c. If the debt ratio rises to 60 percent, the interest rate rises to 11 percent, the price of the stock falls to $35 and the company had to issue additional securities with flotation costs of 5%, what is the cost of capital? Why is this cost different? Given the following information: Interest rate Tax rate Dividend 9% 30% $2.50 Common stock on the market $50 Growth rate Debt ratio 8% 40% a. Determine the firm's weighted average cost of capital. b. If the debt ratio rises to 50 percent and the cost of funds remains the same, what is the new weighted average cost of capital? c. If the debt ratio rises to 60 percent, the interest rate rises to 11 percent, the price of the stock falls to $35 and the company had to issue additional securities with flotation costs of 5%, what is the cost of capital? Why is this cost different?

Answer rating: 100% (QA)

a To determine the firms weighted average cost of capital WACC we first need to calculate the cost o... View the full answer