Problem 9 15 WACC Estimation On January 1, the total market value of the Tysseland Company was $60 million During the year, the company plans to raise and invest $20 million in new projects The firm's present market value capital structure, here below, is considered to be optimal There is no short term debt Debt $30,000,000 Common equity 30,000,000 Total capital $60,000,000 New bonds will have an 10 coupon rate, and they will be sold at par Common stock is currently selling at $30 a share The stockholders' required rate of return is estimated to be 12 , consisting of a dividend yield of 4 and an expected constant growth rate of 8 (The next expected dividend is $1 20, so the dividend yield is $1 20 $30 4 ) The marginal tax rate is 35 In order to maintain the present capital structure, how much of the new investment must be financed by common equity Enter your answer in dollars For example, $1 2 million should be entered as $1200000 $ Assuming there is sufficient cash flow for Tysseland to maintain its target capital structure without issuing additional shares of equity, what is its WACC Round your answer to two decimal places Suppose now that there is not enough internal cash flow and the firm must issue new shares of stock Qualitatively speaking, what will happen to the WACC No numbers are required to answer this question I r s and the WACC will decrease due to the flotation costs of new equity II r s will increase and the WACC will decrease due to the flotation costs of new equity III r s will decrease and the WACC will increase due to the flotation costs of new equity IV r s and the WACC will not be affected by flotation costs of new equity V r s and the WACC will increase due to the flotation costs of new equity Select IIIIIIIVVItem 3

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Problem 9-15 WACC Estimation On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to

Problem 9-15 WACC Estimation

On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $20 million in new projects. The firm's present market value capital structure, here below, is considered to be optimal. There is no short-term debt.

Debt	$30,000,000
Common equity	30,000,000
Total capital	$60,000,000

New bonds will have an 10% coupon rate, and they will be sold at par. Common stock is currently selling at $30 a share. The stockholders' required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected constant growth rate of 8%. (The next expected dividend is $1.20, so the dividend yield is $1.20/$30 = 4%.) The marginal tax rate is 35%.

In order to maintain the present capital structure, how much of the new investment must be financed by common equity? Enter your answer in dollars. For example, $1.2 million should be entered as $1200000. $
Assuming there is sufficient cash flow for Tysseland to maintain its target capital structure without issuing additional shares of equity, what is its WACC? Round your answer to two decimal places. %
Suppose now that there is not enough internal cash flow and the firm must issue new shares of stock. Qualitatively speaking, what will happen to the WACC? No numbers are required to answer this question. I. r_s and the WACC will decrease due to the flotation costs of new equity. II. r_s will increase and the WACC will decrease due to the flotation costs of new equity. III. r_s will decrease and the WACC will increase due to the flotation costs of new equity. IV. r_s and the WACC will not be affected by flotation costs of new equity. V. r_s and the WACC will increase due to the flotation costs of new equity. -Select-IIIIIIIVVItem 3