Question
Larry Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate
Larry Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $37.50 a share. The 3 before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the companys WACC if all the equity used is from retained earnings? Do not round your intermediate calculations. A. 7.58% B. 9.41% C. 8.72% D. 9.94% E. 8.80%
12. Michelle Inc to issue a $1,000 par value, 20-year noncallable bond with a 7.00% annual coupon, paid semiannually. The stock is selling for $1000. The company's marginal tax rate is 40.00%, but the new Congress is considering a change in the corporate tax rate to 45.00%. By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted? A. 0.35% B. 0.36% C. 0.42% D. 0.44% E. 0.30%
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