Question
Consider the following information on Southern Sugar Manufacturing (SSM): The companys bond (long-term debt) is currently selling for $1,100.00. It matures in 10 years, pays
Consider the following information on Southern Sugar Manufacturing (SSM):
The companys bond (long-term debt) is currently selling for $1,100.00. It matures in 10 years, pays interest annually and has a 10% coupon payment. Bonds par value is $1,000.00.
SSM last dividend per share was $1.10. The common stock now sells for $25.00 per share. The expected growth rate for the company is 7% for some foreseeable future.
Assume the following:
- Capital structure consists of 30% Debt and 70% Common Equity.
- SSM tax rate is 40%.
What is the companys weighted average cost of capital? (Use 2-decimal places in your calculation) Where applicable, draw the timeline showing the known and unknown variables, and show your workings.
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