Question: Please help me a clear solution of this question DONT USE EXCEL PLEASE. A firm has a capital structure that consists of 70% equity and

Please help me a clear solution of this question DONT USE EXCEL PLEASE.

A firm has a capital structure that consists of 70% equity and 30% debt. The companys long-term bonds have a before-tax YTM of 14%. The company uses the DCF approach to determine the cost of equity. Firms common stock currently trades at $3121 per share. The year-end dividend (D1) is expected to be $450 per share, and the dividend is expected to grow forever at an annual 9% constant rate. The company estimates that it will have to issue new common stock to help fund this years projects and the flotation cost associated with issuing new common stock is 10%. The companys tax rate is 40%. If new equity was issued, what would be the firms WACC?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

What is the value of CP's revised offer on December 8 (before CP "sweetened" its offer by adding the CVR security)? In your analysis, assume the following: a) A valuation date of December 31, 2015,...

Journal of the International Academy for Case Studies, Volume 16, Number 5, 2010 Weighted Average Cost of Capital (WACC) Using input from an investment banking firm, Clarkson estimates the company's...

CAPE CHEMICAL: CAPITAL BUDGETING ISSUES David A. Kunz, Southeast Missouri State University Benjamin L. Dow III, Southeast Missouri State University dkunz@semo.edu CASE DESCRIPTION The primary subject...

The case tells the story of Ann Stewart, President and primary owner of Cape Chemical. By most measures, the performance of Cape Chemical has been very good over the last three years. Double-digit...

The case tells the story of Ann Stewart, President and primary owner of Cape Chemical. By most measures, the performance of Cape Chemical has been very good over the last three years. Doubledigit...

Cape Chemical is a relatively new regional distributor of liquid and dry chemicals, headquartered in Cape Girardeau, Missouri. The company, founded by Ann Stewart, has been serving southeast...

The unexpected withdrawal of one of Cape Chemicals competitors from the region has provided the opportunity to increase its blended packaged goods sales. That's the good news. The bad news is Cape...

Amgel manufacturing Company's current capital structure is comprised of 30% debt and 70% equity (based on market values). Amgel's equity beta (based on its current level of debt financing) is 1.20,...

Weighted Average Cost of Capital (WACC) Using input from an investment banking firm, Clarkson estimates the company's cost of equity to be 18%. Their bank has indicated a long-term bank loan can be...

Edit question The unexpected withdrawal of one of Cape Chemicals competitors from the region has provided the opportunity to increase its blended packaged goods sales. That's the good news. The bad...

Seasonal Confections, Inc., a manufacturer of candies for various seasons of the year, wants to set up a standards costing system. The controller decided to set up a standards cost card for one...

Write about Real-world applications of the following tests, phenol red broth test, oxidase test, citrate test, phenylalanine deaminase test, starch hydrolysis test, bacitracin, novobiocin, optochin...

Where was Sogdiana located? Group of answer choices Present - day Uzbekistan and Tajikistan Present - day Afghanistan Present - day Nepal Present - day Pakistan

Williams Group started a new business on September 1, 2021. That same day, Williams Group also received $430,000 of cash from issuing common stock and borrowed $230,000 from a friend. On September 1,...