Alpha Products maintains a capital structure of 40% debt and 60% common equity. To finance its capital budget fornext year, the firm will sell $50 million of 9% debentures at par and finance the balance of its $125 million capitalbudget with retained earnings. Next year Alpha expects net income to grow 9% to $140 million, and dividends also areexpected to increase 8% to $4.50 per share and to continue growing at that rate for the foreseeable future. The currentmarket value of Alpha's stock is $65. If the firm has a marginal tax rate of 30%, what is its weighted cost of capital forthe coming year?

Debt = 40%Equity = 60%Cost of debentures = 9%Retained earnings = $125 millionNet income growth rate…

Answered: Alpha Products maintains a capital…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 11P

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