Question
What is the firm's weighted average cost of capital if: ABC company finances its investment programs by 30% with loan funds, 10% funds from preferred
What is the firm's weighted average cost of capital if: ABC company finances its investment programs by 30% with loan funds, 10% funds from preferred shares and 60% funds from common shares. The company can issue bonds with a yield to maturity of 5.6%. The cost of preferred shares is 6%. The current share price of the company is 10 per share. The company's current dividend is 1 (Do=1.00) per share and is expected to grow at a constant rate of 4% per year. We assume that there are no costs of issuing and disposing of debt capital and preferred shares and that no new shares will be issued. The company's tax rate is 20%.
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