Question
A firm plans on financing a major new computerization program by using the following sources of capital consistent with its long-run target capital structure. Debt
A firm plans on financing a major new computerization program by using the following sources of capital consistent with its long-run target capital structure.
Debt $60 million
Preferred Shares $10 million
New Common Shares $40 million
After-tax underwriting and issuing expenses for all three forms of new capital are 4%. Debt will be raised by issuing $1,000 face value bonds carrying a coupon interest rate of 12%. The preferred shares priced at $40 per share will carry $3.60 dividend per share. The firm's common shares are currently trading at $50 per share. It is anticipated that the per-share dividend, D1, at the end of the current period would be $2.50, which is expected to grow steadily at 10% over the foreseeable future. The Corporate tax rate is 40%. What is the firm's WACC?
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