Question
Wail Inc. currently has 130,000 shares of stock outstanding with a market price of $36 a share. Wails next years projected dividend is $4.5 and
Wail Inc. currently has 130,000 shares of stock outstanding with a market price of $36 a share. Wails next years projected dividend is $4.5 and its estimated long-term growth rate is 5%. Its outstanding debt consists of 4,560 coupon bonds each with a face value of $1,000, maturity of five years, and an annual coupon rate of 9% with semi-annual payments. The bonds are traded at par. The tax rate is 40 percent. Suppose Wail wants to get rid of all its debt and become all-equity. Calculate the all equity cost of capital.
a. 9%
b. 5.4%
c. 14.36%
d. 17.5%
e. 22.47%
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