Question
1a.) Wal-Mart plans to open a new store near JU. Wal-Mart is going to finance via bond market and stock market. Total capital required is
1a.) Wal-Mart plans to open a new store near JU. Wal-Mart is going to finance via bond market and stock market. Total capital required is 10 million dollars. 3 million dollars are going to be borrowed from the bond market. This 3% annual coupon bond is traded in the market for $950 and is going to be matured in 10 years. There is no flotation fee. Tax rate is 30%. How much is the cost of debt of Wal-Mart?
1b.) Wal-Mart plans to open a new store near JU. Wal-Mart is going to finance via bond market and stock market. Total capital required is 10 million dollars. 7 million dollars are going to be financed via stock market. Wal-Mart plans to pay $3 per share next year. The dividend is expected to grow at the rate of 5% each year. The stock is traded at $60 per share. How much is the cost of equity (stock)? The flotation fee is 5%.
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