A company has a targeted capital structure of 50% debt and 50%equity. Bond (debt) with face value (or principal amount) of$1200.00 paid 12% coupon annually, mature in 20 years and sell for$950.90. The company’s stock beta is 1.4, the risk free rate is 9%and market risk premium is 6%. The company has a constant growthrate of 6% and a just paid dividend of $3 and sells at $32 pershare. If the company’s marginal, tax rate is 35% calculate:
1. What is the WACC using DDM?
2. If the flotation cost of new equity is 10%. What will be thecompany’s cost new equity capital?
3. What would be the company’s WACC using the new capital?
