D6) T4-25. A firm has determined that its optimal capital structure would be composed of 20% in long-term debt, 10% in Preferred Stock, and 70% in Common Stock equity. The firm'smarginal tax rate is 21 percent. Compute the firm's weighted average cost of capital based on the following information. Note: Keep six-digitals after decimal points for all costcomponent calculations for a precise WACC estimation. Long-Term Debt: The firm can sell a 12-year, $1,000 par value, 7% annual coupon bond. A flotation cost of 2% of the face valueand a discount of $40 would be required to sell the bond. Preferred Stock: The firm has determined it can issue preferred stock at $75 per share par value. The stock will pay a 10%annual dividend. The cost of issuing and selling the stock is $3 per share. Common Stock: The firm's common stock is currently valued at $110 per share. A new issue of stock isexpected to be sold with a $3 per share discount. Flotation costs are expected to be s2 per share. The most recent dividends were $5.25 per share. Its dividends are expected to growat a constant rate of 6% per year in the foreseeable future.Select one:O a. 9.98%O b. 10.18%O c. 10.30%O d. 10.51%

WACC: WACC also known as the company's average cost of capital. It is the sum of individual cost of…

Answered: percent. Compute the firm's weighted…

Business

Finance

percent. Compute the firm's weighted average cost of capital based on the following information.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 15P

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A company has determined that its optimal capital structure consists of 40 percent debt and 60 percent equity.Given the following information, calculate the firm's cost of capital (WACC).rd= 7%, Tax rate = 40%, P0 = $20, Growth = 0%, D0 =$2.00
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