• Assignment: Determine
  • The after-tax cost of equity funding?
  • The after-tax cost of long-term debt funding?
  • The book value weights?
  • The marginal or market value weights?
  • The after-tax weighted average cost of capital (WACC) at book value?
  • The after-tax weighted average cost of capital (WACC) at market value?
• Marginal Tax Bracket: 21%
• Equity Information
  • 50 million shares
  • Issued with $40 Par value
  • Sold at $40 per share, no excess
  • Market Price: $80 per share
  • D₀ = $5.15
  • Growth Rate = 5.0%
  • Flotation Cost = 9.0%
  • Retained Earnings = $1 billion
• Debt Information
  • $1 billion in outstanding debt
  • $1,000 face value per bond
  • Current quote = 110
  • Coupon rate = 9%, semiannual coupons
  • 15 years to maturity
  • Flotation Cost = 2%