. Sondob Dairies has a capital structure that consists of 60 percent long-term debt and 40 percent ordinary shares. The company's CFO has obtained the following information: The before-tax yield to maturity on the company's bonds is 8 percent. The company's ordinary share is expected to pay a P3.00 dividend at year-end (D1 = P3.00), and the dividend is expected to grow at a constant rate of 7 percent a year. The ordinary shares are currently sells for P60 a share. Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget. The company's tax rate is 40 percent. What is the company's weighted average cost of capital (WACC)? . Gateway Inc. has a weighted average cost of capital of 11.5 percent. Its target capital structure is 55 percent equity and 45 percent debt. The company has sufficient retained earnings to fund the equity portion of its capital budget. The before-tax cost of debt is 9 percent, and the company's tax rate is 30 percent. If the expected dividend next period is P5 and the current share price is P45, what is the company's growth rate? . A company with cost of capital of 15% plans to finance an investment with debt that bears 10% interest. The rate it should use to discount the cash flows is
. Sondob Dairies has a capital structure that consists of 60 percent long-term debt and 40 percent ordinary shares. The company's CFO has obtained the following information: The before-tax yield to maturity on the company's bonds is 8 percent. The company's ordinary share is expected to pay a P3.00 dividend at year-end (D1 = P3.00), and the dividend is expected to grow at a constant rate of 7 percent a year. The ordinary shares are currently sells for P60 a share. Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget. The company's tax rate is 40 percent. What is the company's weighted average cost of capital (WACC)? . Gateway Inc. has a weighted average cost of capital of 11.5 percent. Its target capital structure is 55 percent equity and 45 percent debt. The company has sufficient retained earnings to fund the equity portion of its capital budget. The before-tax cost of debt is 9 percent, and the company's tax rate is 30 percent. If the expected dividend next period is P5 and the current share price is P45, what is the company's growth rate? . A company with cost of capital of 15% plans to finance an investment with debt that bears 10% interest. The rate it should use to discount the cash flows is
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 15PROB
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Transcribed Image Text:13. Sondob Dairies has a capital structure that consists of 60 percent long-term debt and 40 percent ordinary shares. The
company's CFO has obtained the following information:
The before-tax yield to maturity on the company's bonds is 8 percent.
The company's ordinary share is expected to pay a P3.00 dividend at year-end (D1 = P3.00), and the dividend is
expected to grow at a constant rate of 7 percent a year. The ordinary shares are currently sells for P60 a share.
Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget.
The company's tax rate is 40 percent.
%3D
What is the company's weighted average cost of capital (WACC)?
14. Gateway Inc. has a weighted average cost of capital of 11.5 percent. Its target capital structure is 55 percent equity and 45
percent debt. The company has sufficient retained earnings to fund the equity portion of its capital budget. The before-tax
cost of debt is 9 percent, and the company's tax rate is 30 percent. If the expected dividend next period is P5 and the
current share price is P45, what is the company's growth rate?
15. A company with cost of capital of 15% plans to finance an investment with debt that bears 10% interest. The rate it should
use to discount the cash flows is
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