Old Exam Questions - Cost of Capital Page 23 of 27 Pages constant at 8 percent, determine what the new cost of equity must be. (Hint: the debt/value and equity/value ratios will change but the WACC will remain constant.) A. 12.44% B. 15.40% C. 11.48% D. 13.46% E. 14.42% 44. Your company’s stock currently has a price of $40 per share and is expected to pay a year-end dividend of $1.00 per share (D1= $1.00). 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 $5 per share. Determine the company's cost of new equity capital. A. 9.40% B. 8.59% C. 9.13% D. 9.67% E. 8.86% 45. Your firm has estimated that it will spend $10 million on new capital budgeting projects during the coming year and has collected the following information: •Your firm’s targeted capital structure consists of 40 percent debt, 10 percent preferred, and 50 percent common equity.
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