company needs $10 million to finance a major investment. : Source Amount Comments Loans $2,000,000 12% nominal
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Question:
- company needs $10 million to finance a major investment. :
| Source | Amount | Comments |
| Loans | $2,000,000 | 12% nominal APR |
| Bonds | $4,000,000 | 10% bond interest rate, semiannual premiums |
| Stock | $3,000,000 | $8 dividend, selling price of $100/share |
| Retained Earnings | $1,000,000 | 7% |
Effective tax rate is 35 percent with taxes paid annually. The stock price is stable.
What is debt and equity mix for this investment?
Calculate Weighted Average Cost of Capital (WACC).
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