Unformatted text preview: A. 10.14% B. 9.27% C. 9.85% D. 8.98% E. 9.56% 27. Assume that a firm expects that its common stock dividend will be $1.90 next year (D 1 ). It also believes that if it sells new shares, the market will be willing to pay $37.50 per share, but that the firm would only net $33.00 per share after adjusting for flotation costs. Given this data, and assuming that the firm’s long-run sustainable growth rate is 6 percent, determine the firm’s cost of new equity. A. 11.52% B. 12.00% C. 11.04% D. 11.28% E. 11.76% 28. Assume that a firm’s optimal capital structure consists of $30,000,000 of debt at a before-tax cost of debt (K D ) of 8 percent, $10,000,000 of preferred stock at a cost of preferred (K P ) of 8 percent, and $60,000,000 of stock at a cost of stock (K S ) of 14 percent. Assuming that the firm’s tax rate is 40%, determine the firm’s weighted average cost of capital (WACC). A. 10.34% B. 11.24% C. 10.94%...
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- Spring '08
- Cost Of Capital, Dividend yield, Weighted average cost of capital