Suppose a company has 5 million common shares outstanding, which have a market value of $24 per
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Suppose a company has 5 million common shares outstanding, which have a market value of $24 per share. The most recent annual dividend paid was $2.25/share. The expectation is for an 8 percent constant growth of the firm’s earnings & dividends. The 3-year average yield on 10-year T-Bonds is 5.50%, the expected return on a broad index of common stocks is 11% and the stock is twice as variable as the market average. The capital structure includes also 150,000 15-year $1,000 par, 10 percent annual coupon bonds outstanding, currently selling for $862.35. The company is in the 35% tax bracket.
What is the firm’s marginal weighted average cost of capital?
Related Book For
Introduction To Corporate Finance
ISBN: 9781118300763
3rd Edition
Authors: Laurence Booth, Sean Cleary
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