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It is given in the problem if I don't mistake River Runs Ltd. has the following right-hand side of its balance sheet: New debt could
It is given in the problem if I don't mistake
River Runs Ltd. has the following right-hand side of its balance sheet: New debt could be issued to yield 12 percent, with flotation costs netting the firm $965 on each $1,000 bond. Preferred shares would require a current yield of 10 percent, with after tax flotation costs of 4 percent. Common shares currently trade at $11, but new shares would be discounted to to $10.50 to encourage sales. After tax flotation costs on new common shares would be 5 percent. The anticipated dividend growth rate is 12 percent. The expected dividend is $0.75. River Runs Ltd. has a 40 percent tax rate and would require new share capital to fund new investments. Based on market value weightings, calculate River's weighted average cost of capital
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