Question
Alpha Products maintains a capital structure of 30% debt and 70% common equity. To finance its capital budget for next year, the firm will sell
Alpha Products maintains a capital structure of 30% debt and 70% common equity. To finance its capital budget for next year, the firm will sell $30 million of 7.875% debentures at par and finance the balance of its $100 million capital budget with retained earnings. Next year Alpha expects net income to grow 7% to $140 million, and dividends also are expected to increase 7% to $1.20 per share and to continue growing at that rate for the foreseeable future. The current market value of Alpha's stock is $30. If the firm has a marginal tax rate of 30%, what is its weighted cost of capital for the coming year?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started