Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following data: The yield on the company’s outstanding bonds is 7.75%; its tax rate is 40%; the next expected dividend is $0.65 a share; the dividend is expected to grow at a constant rate of 6.00% a year; the price of the stock is $15.00 per share; the flotation cost for selling new shares is F = 10%; and the target capital structure is 45% debt and 55% common equity. What is the firm’s WACC, assuming it must issue new stock to finance its capital budget?
The answer is 8.04 % But i cant figure out how
YTM = 7.75% Tax rate = 40% Dividend at year 1 (D1) = $0.65 Growth Rate (g) = 6.00% Present value of share (P0) = $15.00Floatation Cost (F) = 10.0% Weight of Debt (Wd) = 45% Weight of Equity (We) =…
