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(Answered) WACC Estimation


Total market value of a company $60million. During the year, company plans to invest $30mil in new projects. based on the firm's present market value capital structure (Debt $30mil, Common Equity $30mil) which is considered optimal. No short term debt. New bonds will have 6% coupon rate, sold at par. Common stock is currently selling at $30/share. Stockholder's required rate of return is 12% consisting of a dividend yield of 4% and and expected constant growth rate of 8%;next expected div is $1.20 so $1.20/$30=4%. Marginal Corporate Tax rate 30%. In order to maintain present capital structure, how much of the new investment must be financed by common equity. Answer in dollars. And assuming there is sufficient cash flow such that target captil structure can be maintained without issuing additional shares of equity, what is its WACC, rounded to two decimal places.
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WACC Estimation

 


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