The Global Advertising Company has a tax rate of 40%. The company can raise debt at a 12% interest rate and the last dividend paid by Global was P0.90. Global’s common stock is selling for P8.59 per share, and its expected growth rate in earnings and dividend is 5%. If Global issue new common stock, the flotation cost incurred will be 10%. Global plans to finance all capital expenditures with 30% debt and 70% equity. What is Global’s weighed average cost of capital if the firm has sufficient retained earnings to fund the equity portion of its capital budget? What is Global’s weighted average cost of capital if the firm raised the equity portion by selling new shares of stock?

The Global Advertising Company has a tax rate of 40%. The company can raise debt at a 12% interest rate and the last dividend paid by Global was P0.90. Global’s common stock is selling for P8.59 per share, and its expected growth rate in earnings and dividend is 5%. If Global issue new common stock, the flotation cost incurred will be 10%. Global plans to finance all capital expenditures with 30% debt and 70% equity. What is Global’s weighed average cost of capital if the firm has sufficient retained earnings to fund the equity portion of its capital budget? What is Global’s weighted average cost of capital if the firm raised the equity portion by selling new shares of stock?

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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