Answered step by step
Verified Expert Solution
Question
1 Approved Answer
King Ltd. requires $35 million to fund the coming years capital projects. King will finance part of its needs with $21 million in common equity.
King Ltd. requires $35 million to fund the coming years capital projects. King will finance part of its needs with $21 million in common equity. Its common stock sells for $27 per share. Common share dividends have grown at 8% per year over the last four years and this pattern is expected to continue into the foreseeable future. The last annual dividend, just paid, was $1.125 per share. The rest of the needed funds will come from 10-years, $1,000 face value bonds that have a coupon rate of 11%, payable semi-annually and that can be issued for $1,087. The firms tax rate is 42%. Calculate the weighted average cost of capital of the funds to be used to finance the coming years capital projects. (For intermediate calculations, round the annual component returns for equity and debt, as well as the final WACC to the nearest 0.01%, e.g. round 10.239067% to 10.24)
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