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A company has a targeted capital structure of 50% debt and 50% equity. Bond (debt) with...

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Accounting

A company has a targeted capital structure of 50% debt and 50%equity. Bond (debt) with face value (or principal amount) of$1200.00 paid 12% coupon annually, mature in 20 years and sell for$950.90. The company’s stock beta is 1.4, the risk free rate is 9%and market risk premium is 6%. The company has a constant growthrate of 6% and a just paid dividend of $3 and sells at $32 pershare. If the company’s marginal, tax rate is 35% calculate:

1. What is the WACC using DDM?

2. If the flotation cost of new equity is 10%. What will be thecompany’s cost new equity capital?  

3. What would be the company’s WACC using the new capital?

Answer & Explanation Solved by verified expert
3.9 Ratings (542 Votes)
Answer to Requirement 1 Debt Face Value 1200 Current Price 95090 Annual Coupon Rate 12 Annual Coupon 121200 144 Time to Maturity 20 years Let Annual YTM be i 95090 144 PVIFAi 20 1200 PVIFi 20 Using financial calculator N 20    See Answer
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