Question
Yallas Enterprises has the following capital structure: Debt: 10% coupon, 8 years to maturity $15,000,000 Preferred shares: 7.5% dividend (100,000 issued) 3,000,000 Common shares: (500,000
Yallas Enterprises has the following capital structure:
Debt: 10% coupon, 8 years to maturity | $15,000,000 |
Preferred shares: 7.5% dividend (100,000 issued) | 3,000,000 |
Common shares: (500,000 issued) | 10,000,000 |
Retained earnings | 5,000,000 |
During the last several years Yallas Enterprises has enjoyed steady growth. The company last paid a dividend of $1.25 and dividends are expected to grow at 8.89%. The common shares currently trade at $18.00. If new shares were issued at $18.00, they would require flotation expenses of 8% of proceeds.
The preferred shares require a current yield of 8% and any new issue would require flotation expenses of 6% of the price to investors.
The bond yield is 12% and interest is paid annually. Flotation costs of new debt would be 5% of proceeds.
Yallas tax rate is 40 percent, and equity financing would require a new share issue.
Required: Calculate the weighted average cost of capital for the firm to 2 decimal places.
Attach your calculations as a file attachment in the question following.
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