Aquapure has a target capital structure of 45% debt and the remainder common equity. Aquapure's cost of debt on the first $3.5 million borrowed is 7.0%, but that cost of debt increases to 8.0% for borrowing above the $3.5 million level. Its tax rate is 25%, its most recent dividend was $3.00 and that dividend has been growing at rate 2% annually and is expected to continue that growth. The current price of Aquapure stock is $30.00 per share. Flotation costs on new equity are 5.0% and Aquapure has retained earnings of $5 million. What is the WACC if Aquapure's total capital expenditure is expected to be $8.5 million?
Aquapure has a target capital structure of 45% debt and the remainder common equity. Aquapure's cost of debt on the first $3.5 million borrowed is 7.0%, but that cost of debt increases to 8.0% for borrowing above the $3.5 million level. Its tax rate is 25%, its most recent dividend was $3.00 and that dividend has been growing at rate 2% annually and is expected to continue that growth. The current price of Aquapure stock is $30.00 per share. Flotation costs on new equity are 5.0% and Aquapure has retained earnings of $5 million. What is the WACC if Aquapure's total capital expenditure is expected to be $8.5 million?
Chapter14: Capital Structure Management In Practice
Section: Chapter Questions
Problem 24P
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