Question
1. FM Company has two divisions: Textile (Total Capital Requirement $4,22,101 and Pharmaceutical (Total Capital Requirement = $42,210 . Each division employs debt equal to
1. FM Company has two divisions: Textile (Total Capital Requirement $4,22,101 and Pharmaceutical (Total Capital Requirement = $42,210. Each division employs debt equal to $16,000 and preferred stock equal to $14,000 of its total requirements, with equity capital used for the remainder. The current borrowing rate is 10.25%, and the tax rate is 32.5%. Preferred stock can be sold yielding 11.50%. The current price of Textile stock is $122.33. Textile stock just paid $2.34 dividend, and it is expected to increase at a rate of 13.25% forever. On the other hand, the current price of pharmaceutical stock is $79.88. Pharmaceutical stock currently paying dividend of $2.75 and expected to pay $3.15 next year. This growth will continue forever. What weighted average cost of capital and would you recommanded for these two divisions,
average cost of capital would you recommend for these two divisions2
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