Question
The director of capital budgeting for XYZ, Inc. manufacturers of playground equipment, is considering a plan to expand production facilities in order to meet an
The director of capital budgeting for XYZ, Inc. manufacturers of playground equipment, is considering a plan to expand production facilities in order to meet an increase in demand. The firms target capital structure calls for a debt ratio of 29%. XYZ currently has a bond issue outstanding that will mature in 10 years and has a 20% annual coupon rate. The bonds are currently selling for $1,705.94. The firm has maintained a constant growth rate of 6%. XYZs most recent FCFF was $3.35mm, its current stock price is $47.99 and there are 740,000 shares outstanding. Its tax rate is 22%. What is the firm's cost of equity? (Hint: first find WACC from EV.) (PLEASE SHOW WORK)
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