Question
Please help me answer this two part question: A. Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the
Please help me answer this two part question:
A. Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following data: The company's cost of debt (YTM) is 7.75%, its tax rate is 40%, the next expected dividend is $0.65 a share, the dividend is expected to grow at a constant rate of 6.00% a year, the price of the stock is $15.00 per share, the flotation cost for selling new shares is F = 10%, and the target capital structure is 45% debt and 55% common equity. What is the firm's WACC, assuming it must issue new stock to finance its capital budget?
B.) A firm wishes to issue new shares of its stock, which already trades in the market. The current stock price is $25, the most recent dividend was $2 per share, and the dividend is expected to grow at a rate of 7% forever. Flotation costs for this issue are expected to be 7%. What is the required rate of return (or financing cost) in this new issue?
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