Answered step by step
Verified Expert Solution
Question
1 Approved Answer
How do I solve this and what is rhe correct answer? WACC Estimation On January 1 , the total market value of the Tysseland compony
How do I solve this and what is rhe correct answer?
WACC Estimation On January 1 , the total market value of the Tysseland compony was 160 milion. Quring the year, the company plans to raise and imvest $30 milion in new projects. The firm's prosent morket value copital structure, here below, is considered to be optimal. There is no shortterm debt. New bonds will have an 8% coupon rate, and they will be sold ot par. Common stock is currently selling at $30 a share. The stockholders' required rate of return is estimated to be 12%, consisting of a dividend vieid of 4% and an expected constant growth rate. of 8%. (The next expected dividend is $1.20, so the dividend vield is $1.20/530=4% ) The marginal tax rate is 25%. a. In order to maintain the present copital structure, how much of the now investment must be financed by common equity? Round your answer to the nearest dollar. 3 b. Assurning there is sufficient cash flow for Tysseland to maintain its target capital structure without issuing additional shares of equity, whot is its WACC? Round your answer to two decimal places. 96. c. Suppose now that there is not Arlough internal cash flow and the firm must issue new shares of stock. Qualitatively speaking. what will happen to the WACC? No numbers are required to enswer this question. 1. ry and the WACC will decrease due to the flotation costs of hew equity. II. rs will increase and the WACC will decrease due to the flotation costs of new equity. III. fs will decrease and the WACC will increase due to the fotation costs of new equity. IV. fs and the WACC will not be affected by flotation costs of new equity. V.rs and the WACC will increase due to the flotation costs of new equity Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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