Tysseland company's present market value capital structure shwon below is optimal. There is no short-term debt. Capiatal Component: Market Value Debt 30,000,000 Common Equity 90,000,000 Bonds have an 8% coupon rate, and they will be sold at par. Common stock is currently selling at $30 a share. The stockholder's required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected growth rate of 8%. (The next expected dividend is $1.20, so the dividend yield is $1.20/$30 = 4%.) The marginal tax rate is 30%. What is Tysseland;s WACC?
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Tysseland company's present market value capital structure shwon below is optimal. There is no short-term debt.
Capiatal Component: Market Value
Debt 30,000,000
Common Equity 90,000,000
Bonds have an 8% coupon rate, and they will be sold at par. Common stock is currently selling at $30 a share. The stockholder's required
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