Suppose that the market value of a company’s 5.000.000 outstanding number of shares is estimated at £500 mn. The market value of its interest-bearing debt is estimated at £400 mn and the average before-tax yield on these liabilities is 10% per year. Tax rate is assumed to be 25%. Assume that the stock of the company is currently paying a dividend of £10 per year. The dividend growth rate is projected to be 10% per year. Please find the weighted average cost of capital for the company?

Suppose that the market value of a company’s 5.000.000 outstanding number of shares is estimated at £500 mn. The market value of its interest-bearing debt is estimated at £400 mn and the average before-tax yield on these liabilities is 10% per year. Tax rate is assumed to be 25%. Assume that the stock of the company is currently paying a dividend of £10 per year. The dividend growth rate is projected to be 10% per year. Please find the weighted average cost of capital for the company?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 15P

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