Question
To fund a project, Khas Food will raise 40% of capital issuing bonds, 10% issuing preferred stock and the rest of the capital will be
To fund a project, Khas Food will raise 40% of capital issuing bonds, 10% issuing preferred stock and the rest of the capital will be coming from issuing new common stocks. The company will issue bonds with 8% coupon, having 15 years till maturity. To sell the issue, an average discount of 2% per bond needs to be offered. There is an associated flotation cost of 3% of the par value. Preferred stock of BDT 100 par value paying a 5% dividend can be sold for BDT 75. The flotation cost of issuing preferred stock is BDT 3 per share. The company has a beta of 1.1 and sells for BDT 40 a share. The government short term security is yielding 4% and the market risk premium is 8%. Khas Food is in 35% tax bracket. Required: Calculate WACC for Khas Food.
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