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RichforEver has established a target capital structure of 60 percent debt and 40 percent common equity. The firm expects to earn $400,000 in after-tax income
RichforEver has established a target capital structure of 60 percent debt and 40 percent common equity. The firm expects to earn $400,000 in after-tax income during the coming year, and it will retain 40 percent of those earnings. The current market price of the firm's stock is Po = $28; its last dividend was Do = $2.20, and its expected dividend growth rate is 6 percent. RichforEver can issue new common stock at a 15 percent flotation cost. What will the marginal cost of equity capital (not the WACC) be if it must fund a capital budget requiring $350,000 in total new capital? a. 13.9% 6.9.7% C.-7.9% od 15.8% e. 14.32%
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