Predator Tech is in the process of expanding and raising new capital through an initial public...

 

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Predator Tech is in the process of expanding and raising new capital through an initial public offering of common equity. The company has a target capital structure consisting of a debt to value (wa) ratio of 30%. A current debt issue has a face value of $1,000 and annual coupon of 7.20% which is paid semi-annually. It has 20 years remaining to maturity and it currently sells for $1,025. Flotation costs of the new issue of stock are expected to be 7%, and using the pure play method with similar firms the stocks beta is estimated at 1.30 (adjusted for the leverage change). The investment bank believes the stock can sell at $15 per share. The company is expected to pay a dividend of $0.60 next year and it should grow at 8% per year indefinitely. If the tax rate is 25%, what is the weighted average cost of capital? Predator Tech is in the process of expanding and raising new capital through an initial public offering of common equity. The company has a target capital structure consisting of a debt to value (wa) ratio of 30%. A current debt issue has a face value of $1,000 and annual coupon of 7.20% which is paid semi-annually. It has 20 years remaining to maturity and it currently sells for $1,025. Flotation costs of the new issue of stock are expected to be 7%, and using the pure play method with similar firms the stocks beta is estimated at 1.30 (adjusted for the leverage change). The investment bank believes the stock can sell at $15 per share. The company is expected to pay a dividend of $0.60 next year and it should grow at 8% per year indefinitely. If the tax rate is 25%, what is the weighted average cost of capital?

Answer rating: 100% (QA)

Solution 1 Before tax cost of debt YTM of the bonds YTM is that discount ra... View the full answer