Question
Avaya Corporation has a target capital structure of 40 percent debt and 60 percent equity. Current share price in the market is Taka 450. EPS
Avaya Corporation has a target capital structure of 40 percent debt and 60 percent equity. Current share price in the market is Taka 450. EPS for the latest year is Taka 120 and 50 percent is expected to be paid out as dividend. Firm's usual ROE is 25 percent. The 50 % payout ratio is normal for the company. The YTM on its bonds is 16 percent and its marginal tax rate is 40 percent.
a) Determine the cost of retained earnings, ke.
b) What is the WACC of Avaya?
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Contemporary Financial Management
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
10th Edition
978-0324289114, 0324289111
