The following was collected with regards to Blue Co.: · The capital structure is 60% equity funded. · The company anticipates that it will need to raise new ordinary shares for this year. Total flotation costs will be equal to the 7.5% of the amount issued. · The yield to maturity of the company’s bonds is 9%. · Applicable tax rate is 30%. · The year-end dividend is forecasted to be P0.25 per share. · The firm expects that its dividend will grow yearly at a constant rate of 3%. · The company’s ordinary share price is P32. What is the weighted cost of debt?

The following was collected with regards to Blue Co.: · The capital structure is 60% equity funded. · The company anticipates that it will need to raise new ordinary shares for this year. Total flotation costs will be equal to the 7.5% of the amount issued. · The yield to maturity of the company’s bonds is 9%. · Applicable tax rate is 30%. · The year-end dividend is forecasted to be P0.25 per share. · The firm expects that its dividend will grow yearly at a constant rate of 3%. · The company’s ordinary share price is P32. What is the weighted cost of debt?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 11P

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Question

The following was collected with regards to Blue Co.:

·       The capital structure is 60% equity funded.
·       The company anticipates that it will need to raise new ordinary shares for this year. Total flotation costs will be equal to the 7.5% of the amount issued.
·       The yield to maturity of the company’s bonds is 9%.
·       Applicable tax rate is 30%.
·       The year-end dividend is forecasted to be P0.25 per share.
·       The firm expects that its dividend will grow yearly at a constant rate of 3%.
·       The company’s ordinary share price is P32.

What is the weighted cost of debt?

Leveraging special tenchniques in analyzing historical data to predict future trends. Forecasting covers the methods and types of forecasting and their application to case studies.

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