Currently, Gamora Corporation has a capital structure that consists of 50% equity and 50% debt. The company's long-term bonds have a before-tax yield to maturity of 8%. The company uses the DCF approach to determine the cost of equity. Gamora's common stock currently trades at P115 per share. The year-end dividend (D1) is expected to be P6.50 per share, and the dividend is expected to grow forever at a constant rate of 6% a year. The company estimates that it will have to issue new common stock to help fund this year's projects. The flotation cost on new common stock issued is 15%, and the company's tax rate is 30%.
Currently, Gamora Corporation has a capital structure that consists of 50% equity and 50% debt. The company's long-term bonds have a before-tax yield to maturity of 8%. The company uses the DCF approach to determine the cost of equity. Gamora's common stock currently trades at P115 per share. The year-end dividend (D1) is expected to be P6.50 per share, and the dividend is expected to grow forever at a constant rate of 6% a year. The company estimates that it will have to issue new common stock to help fund this year's projects. The flotation cost on new common stock issued is 15%, and the company's tax rate is 30%.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Currently, Gamora Corporation has a capital structure that consists of 50% equity and 50% debt. The company's long-term bonds
have a before-tax yield to maturity of 8%. The company uses the DCF approach to determine the cost of equity. Gamora's common
stock currently trades at P115 per share. The year-end dividend (D1) is expected to be P6.50 per share, and the dividend is expected to
grow forever at a constant rate of 6% a year. The company estimates that it will have to issue new common stock to help fund this
year's projects. The flotation cost on new common stock issued is 15%, and the company's tax rate is 30%.
What is the company's current weighted average cost of capital (WACC)?
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