DEF has a capital structure that consists of 70% equity and 30% debt. The company's bonds have a yield of maturity of 8.4% before tax. The company's common stock currently trades at P45/share. Dividend next year is expected to be P2.50/share. In recent years, the company has grown at 7% annually. New issues of shares have flotation costs of 10% and current tax rate is 40%. Compute the weighted average cost of capital if the company needs to issue common shares to fund investment projects. A. 10.73% B. 10.30% C. 11.31% D. 7.48% E. Answer not given

DEF has a capital structure that consists of 70% equity and 30% debt. The company's bonds have a yield of maturity of 8.4% before tax. The company's common stock currently trades at P45/share. Dividend next year is expected to be P2.50/share. In recent years, the company has grown at 7% annually. New issues of shares have flotation costs of 10% and current tax rate is 40%. Compute the weighted average cost of capital if the company needs to issue common shares to fund investment projects. A. 10.73% B. 10.30% C. 11.31% D. 7.48% E. Answer not given

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 8P

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