3. A company has determined that its optimal; capital structure consists of 40%debt and 60% equity. Assume the firm will not have enough retained earnings to fund the equity portion of its capital budget. Also assume the firm accounts for flotation cost by adding the cost of capital. Given the following information, calculate the firm's WACC. Net Income - P40,000; Pay out ratio - 60% Estimated bond yield - 8%; Market Price - P25.00; Flotation cost - 12% . Shares outstanding - 10,000 shares Growth 5% Tax rate - 40%
3. A company has determined that its optimal; capital structure consists of 40%debt and 60% equity. Assume the firm will not have enough retained earnings to fund the equity portion of its capital budget. Also assume the firm accounts for flotation cost by adding the cost of capital. Given the following information, calculate the firm's WACC. Net Income - P40,000; Pay out ratio - 60% Estimated bond yield - 8%; Market Price - P25.00; Flotation cost - 12% . Shares outstanding - 10,000 shares Growth 5% Tax rate - 40%
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 4P
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Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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Transcribed Image Text:3. A company has determined that its optimal; capital structure consists of 40%debt and 60%
equity. Assume the firm will not have enough retained earnings to fund the equity portion of
its capital budget. Also assume the firm accounts for flotation cost by adding the cost of
capital. Given the following information, calculate the firm's WACC.
Net Income - P40,000;
Pay out ratio- 60%
Estimated bond yield - 8%;
Market Price - P25.00;
Flotation cost 12%
•
•
Shares outstanding - 10,000 shares
Growth
5%
Tax rate
40%
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