Question
ABC Company needs Tk 32,00,000 for the expansion of its business. The manager of the company decided to raise the funds as follows: I. Issuing
ABC Company needs Tk 32,00,000 for the expansion of its business. The manager of the company decided to raise the funds as follows: I. Issuing common stock for Tk 12,00,000 with Tk. 100 each with a flotation cost of 6.5%. The company's next expected dividend is Tk. 22.5 per share, and the dividend payout ratio is 34%, where the return from its reinvestment is 13.5%. I. The firm plans to issue 11% bond with a face value of 2500 for 20 years to manage Tk. 15,00,000. The company is in the tax bracket of 34%. IlI. Issuing 8.5% preferred stock for Tk.100 each with a flotation cost of 4.5% for collecting the remaining needed capital. From the above data calculate- i. The cost of each components of capital structure. ii. The WACC where the weights are taken as the proportion of amount collection with each component.
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