Question
The Financial controller of BESTH Co. is about to select among three available projects. He was provided the following information: Project Rate of return X
The Financial controller of "BESTH Co." is about to select among three available projects. He was provided the following information:
Project Rate of return
X 12.10 %
Y 11.80%
Z 12.95%
BESTH Co. has a capital structure that consists of $15,000 debt, $10,000 preferred stock, $40,000 internal common equity from retained earnings, and $35,000 external common equity through issuing new shares that would incur a 10% flotation cost.
The company estimates that it can issue debt at a before tax cost of 9%, and its tax rate is 40%. The company can also issue preferred stock at $60 per share, which pays a constant dividend of $6 per year.
The company's common stock currently sells at $30 per share. The year-end dividend, D1, is expected to be $2.50, and the dividend is expected to grow at a constant rate of 6% per year.
1- BESTH Co. weight of debt?
2- BESTH Co. weight of internal common equity from retained earnings?
3- BESTH Co. weight of external common equity ?
4- BESTH Co. weight of preferred equity?
5- The after-tax cost of debt for BESTH Co. ?
6- The cost of internal equity for BESTH Co. is
7- The cost of external equity for BESTH Co.?
8- The cost of preferred equity for BESTH Co. ?
9- BESTH Co. weighted average cost of capital (WACC)?
10- The project(s) that can be accepted by the company is(are)?
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