A public limited company has the following capital structure, which it considers to be optimal: Debt = 25% , p
Question:
The company’s tax rate is 40% and investors expect earnings and dividends to grow at a constant rate of 6% in the future. The company paid a dividend of Rs.3.60 per share last year (D0 ), and its stock currently sells at a price of Rs.60 per share.
The risk free rate of return in the market is 6%, the market risk premium is 5%, and the company has beta equal to 1.3.
All these terms would apply to new security offerings:
Preferred stock: New preferred stock could be sold to the public at a price of Rs.100 per share, with a dividend of Rs.9. Ignore flotation costs.
Debt: Debt could be obtained at an interest rate of 9%.
Required:
Calculate Weighted Average Cost of Capital (WACC) for the company.
(Hints: Use CAPM for calculating required rate of return on common stocks)
Answer:
This is an enormous (entry level) finance homework question that requires the use of spreadsheets.
If you're in a finance class, you need to learn all of these formulas and terms. Getting the answers from us is of no use to you unless we have the time and space to explain each one (and you take the time to read them).
(I'll give you a hint: you forgot to tell us how much interest you're paying on the 25% debt load. That's part of the formula for return on the 75% equity.)
guys plz...don't put u r class assignments here?????
I dont think this system was intended to help you cheat on your Principles of Finance class homework. Thanks.
There is a direct formula for this, its not that hard. Try reading the book instead of getting someone else to do it for you.
More Questions & Answers...