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Assignment_9

# Assignment_9 - 2,000,000 Total Liabilities 2,500,000...

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Assignment 9 A. Compute WACC of the firm with the following information a. The common stock price is \$100. the flotation cost is \$5 per issued  share. The expected dividend next year is \$10 and the growth rate is  constant at 5%. b. The preferred stock price is \$100. The last year dividend is \$10.  Flotation cost is \$5 per share. c. The current bond price is 904.53. The flotation cost is also \$5 per  bond. The bond has 10 year maturity and 10% annual coupon.  d. The tax rate is 40% e. Suppose that the company will issue new common stock if they want  to use common equity f. The part of balance sheet is given as: Balance Sheet Current Liabilities         500,000  Long-term Bond

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Unformatted text preview: 2,000,000 Total Liabilities 2,500,000 Preferred Stock 800,000 Common Stock 1,000,000 Retained Earnings 500,000 Total Shareholder's Equity 2,300,000 Total Liabilities and Owner's Equity 4,800,000 B. Compute marginal WACC a. If the company raises fund from preferred stock not more than \$300,000, cost of preferred stock is 7%. If excess, the cost is 8% b. If the company raises fund from bond not more than \$1,000,000, cost of deby is 4%. If excess, the cost is 5% c. Cost of retained earning is 11% d. Cost of common stock is 12% e. Available retained earning is \$400,000...
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