The financial manager had collected the following information regarding Modern Furniture Co.? Modern Furniture capital structure is 70 percent equity, 30 percent debt. The yield to maturity on the Modern Furniture bonds is 9 percent. Modern Furniture year-end dividend is forecasted to be $0.80 a share. Modern Furniture expects that its.dividend will grow at a constant rate of 9 percent a year. Modern Furniture stock price is $25. Modern Furniture tax rate is 40 percent. The firm payout ratio is 100 percent. Its investment bankers anticipate that the total flotation cost will equal 10 percent of the amount issued. Assume the company accounts for flotation costs by adjusting the cost of capital. Given this information, calculate the company's WACC.
The financial manager had collected the following information regarding Modern Furniture Co.? Modern Furniture capital structure is 70 percent equity, 30 percent debt. The yield to maturity on the Modern Furniture bonds is 9 percent. Modern Furniture year-end dividend is forecasted to be $0.80 a share. Modern Furniture expects that its.dividend will grow at a constant rate of 9 percent a year. Modern Furniture stock price is $25. Modern Furniture tax rate is 40 percent. The firm payout ratio is 100 percent. Its investment bankers anticipate that the total flotation cost will equal 10 percent of the amount issued. Assume the company accounts for flotation costs by adjusting the cost of capital. Given this information, calculate the company's WACC.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The financial manager had collected the following information regarding Modern Furniture
Co.?
Modern Furniture capital structure is 70 percent equity, 30 percent debt.
The yield to maturity on the Modern Furniture bonds is 9 percent.
Modern Furniture year-end dividend is forecasted to be $0.80 a share.
Modern Furniture expects that its.dividend will grow at a constant rate of 9 percent a year.
Modern Furniture stock price is $25.
Modern Furniture tax rate is 40 percent.
The firm payout ratio is l00 percent. Its investment bankers anticipate that the total flotation
cost will equal 10 percent of the amount issued. Assume the company accounts for flotation
costs by adjusting the cost of capital.
Given this information, calculate the company's WACC.
a. 10.41%
b. 13.55%
O c. 10.78%
Od. 12.56%
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