1.A company is considering the following additional capital structure: -10%, 10-year term, P1,000 par bond is currently...
Question:
1.A company is considering the following additional capital structure:
-10%, 10-year term, P1,000 par bond is currently selling to yield 12%.Total number of bonds to be issuedis 2,000. Flotation cost for bonds is 1% of its par.
-10,000 outstanding shares of 10%, P100 par value preferred stocks are sellingcurrently to yield 12%.
-The company has available retained earnings for capital budget amounting to P2 million.
-20,000 Common stocks with a par value of P100.Similar stocks is yielding 12%.The current market risk premium is 4%and company's beta is 1.1. The common stock just paid a dividend of P2.75 per stock and expects an indefinitedividend growth of 6%.
-The company's marginal tax rate is 35% and selling expenses in the issuance ofpreferred and common stock is P5 per stock..
Required:Compute the company's market-based/marginal WACC.
Expert Answer:
Before computing the Weighted Average Cost of Capital WACC we first need to determine the weights and costs associated with each type of capital Cost ... View the full answer
