Question
The Global Advertising Company has a marginal tax rate of 40 percent. The company can raise debt at a 12 percent interest rate and the
The Global Advertising Company has a marginal tax rate of 40 percent. The company can raise debt at a 12 percent interest rate and the last dividend paid by Global was $0.90. Globals common stock is selling for $8.59 per share, and its expected growth rate in earnings and dividends is 5 percent. If Global issues new common stock, the flotation cost incurred will be 10 percent of the market price. Global plans to finance all capital expenditures with 30 percent debt and 70 percent equity. What is the firms weighted average cost of capital if the firm has sufficient retained earnings to fund the equity portion of its capital budget?
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