Your company's stock sells for $50 per share, its last dividend (D0) was $2.00, its growth rate
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Your company's stock sells for $50 per share, its last dividend (D0) was $2.00, its growth rate is a constant 5 percent, and the company would incur a flotation cost of 15 percent if it sold new common stock. Net income for the coming year is expected to be $500,000 and the firm's payout ratio is 60 percent. The firm's common equity ratio is 30 percent and it has no preferred stock outstanding. The firm can borrow up to $300,000 at an interest rate of 7 percent; any additional debt will have an interest rate of 8 percent. Your company's tax rate is 40 percent. If the firm has a capital budget of $1,000,000, what is the WACC for the last dollar of capital the company raises?
a. | 6.34% | |
b. | 7.18 | |
c. | 13.25% | |
d. | 11.81% | |
e. | 9.94% |
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