Question
Sally Johnson, an investment analyst, has collected the following information regarding Lehman & Tiffany Co.: --The yield to maturity (YTM) on the company's bonds is
Sally Johnson, an investment analyst, has collected the following information regarding Lehman & Tiffany Co.:
--The yield to maturity (YTM) on the company's bonds is 10 percent.
--The company's current dividend is $0.80 a share.
--The company's stock price is $22.
--The company expects that its dividend will grow at a constant rate of 8 percent a year.
--The company's capital structure is 65 percent equity and 35percent debt. The company's tax rate is 40%.
--The company anticipates that total flotation costs will equal 11 percent of the amount issued.
Assume the company accounts for flotation costs. Calculate the company's WACC.
A. 10.2%
B. 10.8%
C. 9.7%
C. 11.4%
D. 12.2%
E. 8.6%
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