The following data refers to the next three questions: You were hired as a consultant to Biggers Corp., and you were provided with the following data: Target capital structure: 30% debt and 70% common equity. The yield to maturity for the companys debt is 7.0%. The companys common stock is trading at a price of $50.00. The company is expected to pay a dividend of $4.00 next year (D1), and this dividend is expected to grow at a constant rate of 4.0%. The tax rate is 25%.

1. What is the companys cost of equity assuming the company has sufficient retained earnings and need not issue new shares (round to nearest percentage)?

a. 7.2%

b. 9.0%

c. 10.0%

d. 11.0%

e. 12.0% <-- Answer

2 Assuming the firm will not be issuing any new stock and instead will use retained earnings. What is the firms WACC (round to 1 decimal place)?

a. 7.7%

b. 7.8%

c. 8.1%

d. 9.5%

e. 10.0% <-- Answer

3. Suppose the firm has no retained earnings to invest but must instead issue new stock. The floatation costs for issuing new common stock are 15.0% of capital raised. What is the firms WACC given this new information (round to 1 decimal place)?

a. 8.1%

b. 8.4%

c. 8.6%

d. 10.3%

e. 11.0% <-- Answer