Q. The director of capital budgeting for XYZ, Inc. manufacturers of playground equipment, is considering a plan to expand production facilities in order to meet an increase in demand. He estimates that this expansion will produce a rate of return of 13%. The firm’s target capital structure calls for a debt ratio of 7%. See-Saw currently has a bond issue outstanding which will mature in 29 years and has a 1% annual coupon rate. The bonds are currently selling for $218.91. The firm has maintained a constant growth rate of 9%. See-Saw’s most recent dividend is $2.79 and its current stock price is $30.00. Its tax rate is 40%. What is the firm's Weighted Average Cost of Capital (WACC)? (Assume that there is no preferred stock outstanding.)

Q. The director of capital budgeting for XYZ, Inc. manufacturers of playground equipment, is considering a plan to expand production facilities in order to meet an increase in demand. He estimates that this expansion will produce a rate of return of 13%. The firm’s target capital structure calls for a debt ratio of 7%. See-Saw currently has a bond issue outstanding which will mature in 29 years and has a 1% annual coupon rate. The bonds are currently selling for $218.91. The firm has maintained a constant growth rate of 9%. See-Saw’s most recent dividend is $2.79 and its current stock price is $30.00. Its tax rate is 40%. What is the firm's Weighted Average Cost of Capital (WACC)? (Assume that there is no preferred stock outstanding.)

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter17: Multinational Capital Structure And Cost Of Capital

Section: Chapter Questions

Problem 14QA

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