13,14

An analyst has collected the following information regarding Christopher Co.: - The company's capital structure is 70 percent equity, 30 percent debt. - The yield to maturity on the company's bonds is 5 percent. - The company's year-end dividend (D1) is forecasted to be $0.9 a share. The company expects that its dividend will grow at a constant rate of 5 percent a year. - The company's stock price is $25. - The company's tax rate is 40 percent. The company anticipates that it will need to raise new common stock this year. Its investment bankers anticipate that the total flotation cost will equal 10 percent of the amount issued. Assume the company accounts for flotation costs by adjusting the cost of capital. at a constant rate of 5 percent a year. - The company's stock price is $25. - The company's tax rate is 40 percent. - The company anticipates that it will need to raise new common stock this year. Its investment bankers anticipate that the total flotation cost will equal 10 percent of the amount issued. Assume the company accounts for flotation costs by adjusting the cost of capital. Given this information, calculate the company's cost of new equity. Round it to two decimal places. Your Answer: Answer Suppose you are estimating the WACC for Columbus Inc. It has the following data from its balance sheet: total debt =$350 million; total equity= $70 million. It has 20 million shares outstanding, and its stock is trading at $32 per share. Your analysis shows that the company's current borrowing rate is 7%, and that the cost of equity is 13%. If the company marginal tax rate is 30%, what is its WACC? Your