Question
Use the information to answer the following questions. The Global Advertising Company has a marginal tax rate of 40%. The company can raise debt at
Use the information to answer the following questions. The Global Advertising Company has a marginal tax rate of 40%. The company can raise debt at an 8% interest rate. The last dividend paid by Global was $1.10. Globals common stock is selling for $7.93 per share, and its expected growth rate in earnings and dividends is 4%. Global plans to finance all capital expenditures with 30% debt and 70% equity.
Two independent projects are available: Project A has a rate of return of 19%, while Project Bs return is 18%. These two projects are equally risky and also about as risky as the firms existing assets.
Assume that the floatation cost of new stock issuing is 1.5%. What is Global's cost of common stock if it has to issue new common stock?
17.99%
16.23%
19.65%
17.78%
18.65%
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