Question
Lauren Corporation has a target capital structure of 40% bond financing, 10% preferred stock financing, and 50% common equity financing. The cost of bonds is
Lauren Corporation has a target capital structure of 40% bond financing, 10% preferred stock financing, and 50% common equity financing. The cost of bonds is 8%, the cost of preferred stock is 13%, the cost of retained earnings is 16%, and the cost of a new issue of common stock is 17%. Lauren forecasts it will retain $2,500,000 of new earnings in the coming year. What is Laurens weighted-average cost of capital (WACC) after it switches to new common stock as its source of common equity financing?
Group of answer choices 12.67%. 13.00%. 12.33%. 12.50%.
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