12-13A. (Weighted average cost ofcapital) Crypton Electronics has a capital structure consisting of 40 percent common stock...
Question:
12-13A. (Weighted average cost ofcapital) Crypton Electronics has a capital structure consisting of 40 percent common stock and 60 percent debt. A debt issue of $1,000 par value 6 percent bonds, maturing in 15 years and paying annual interest, will sell for $975. Flotation costs for the bonds will be $15 per bond. Common stock of the firm is currently selling for $30 per share. The firm expects to pay a $2.25 dividend next year. Dividends have grown at the rate of 5 percent per year and are expected to continue to do so for the foreseeable future. Flotation costs for the stock issue are 5 percent of the market price. VVhat is Crypton's cost of capital where the firm's tax rate is 30 percent?
Step by Step Answer:
Financial Management Principles And Applications
ISBN: 9780131450653
10th Edition
Authors: Arthur J. Keown, J. William Petty, John D. Martin, Jr. Scott, David F.