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Category > Business & Finance Posted 01 Jun 2017 My Price 8.00

A company has determined that its optimal capital

A company has determined that its optimal capital structure consists of 40 percent debt and 60 percent equity.  Assume the firm will not have enough retained earnings to fund the equity portion of its capital budget.  Also, assume the firm accounts for flotation costs by adjusting the cost of capital.  Given the following information, calculate the firm’s weighted average cost of capital.

kd = 8%

P0 = $25

Net income = $40,000

Growth = 0%

Payout ratio = 50%

Shares outstanding = 10,000

Tax rate = 40%

Flotation cost on additional equity = 15%

a.    7.60%                               b.    8.05%                           c.     11.81%                          d.    13.69%

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Status NEW Posted 01 Jun 2017 06:06 AM My Price 8.00

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