A company has determined that its optimal; capital structure consists of 40%debt and 60% 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 cost by adding the cost of capital. Given the following information, calculate the firm's WACC. Net Income - P40,000; Pay out ratio 60% Estimated bond yield - 8%; Shares outstanding - 10,000 shares Market Price = P25.00 ; Growth = 5% Flotation cost - 12% ; Tax rate - 40%
A company has determined that its optimal; capital structure consists of 40%debt and 60% 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 cost by adding the cost of capital. Given the following information, calculate the firm's WACC. Net Income - P40,000; Pay out ratio 60% Estimated bond yield - 8%; Shares outstanding - 10,000 shares Market Price = P25.00 ; Growth = 5% Flotation cost - 12% ; Tax rate - 40%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
A company has determined that its optimal; capital structure consists of 40%debt and 60% equity. Assume the firm will not have enough
Net Income - P40,000; Pay out ratio 60%
Estimated bond yield - 8%; Shares outstanding - 10,000 shares
Market Price = P25.00 ; Growth = 5%
Flotation cost - 12% ; Tax rate - 40%
show solution
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education