Question
byron corporation's target capital structure consists of 40% debt and 60% common equity. assume that the firm has no retained earnings. the company's last dividend
byron corporation's target capital structure consists of 40% debt and 60% common equity. assume that the firm has no retained earnings. the company's last dividend (D0) was $2, which is expected to grow at a constant rate of 4%; and the current stock price is $21.88. Baryon can raise all the debt financing it needs at 14%. if byron issues new common stock, a 20% flotation cost will be incurred. the firm's tax rate is 40%.
1. what is the component cost of the equity raised by selling new common stock?
a. 17.0%
b. 16.4%
c. 16.0%
d. 14.6%
e. 12.0%
2. what is the firm's WACC?
a. 12.96%
b. 13.56%
c. 14.25%
d. 16.41%
e. 18.10%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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