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Cost of Capital 10 - A 15.30 B 14.90 C 15.10 D 15.70 E...

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Old Exam Questions - Cost of Capital Page 10 of 27 Pages 13% for up to an additional $2,000,000 of new common stock. 10. What is the weighted average cost of capital for the very last dollar to be raised? A. 9.60% B. 9.20% C. 9.40% D. 9.50% E. 9.30% 11. What is the weighted average cost of capital for the entire $10,000,000 to be raised for the expansion? 12. Your company’s stock currently has a price of $50 per share and is expected to pay a year-end dividend of $4.00 per share (D 1 = $4.00). The dividend is expected to grow at a constant rate of 6 percent per year. The company has insufficient retained earnings to fund capital projects and must, therefore, issue new common stock. The new stock has an estimated flotation cost of $7 per share. Determine the company's cost of equity capital.
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Unformatted text preview: A. 15.30% B. 14.90% C. 15.10% D. 15.70% E. 15.50% 13. Your company’s CFO is interested in estimating the company's weighted average cots of capital (WACC) and has collected the following information: • The company has bonds outstanding that mature in 18 years with an annual coupon of 7.5 percent (the bond pays $75 on an annual basis). The bonds have a face value of $1,000 and sell in the market today for $1,120, giving a before-tax cost of debt of 6.36145%. • The risk-free rate is 3 percent • The market risk premium is 5 percent • The stock's beta is 1.2 • The company's tax rate is 40 percent • The company's target capital structure consists of 60 percent equity and 40 percent debt • The company uses the CAPM to estimate the cost of equity and does not include flotation costs as part of its cost of capital – it uses the cost of retained earnings....
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