Assume That You Are on the Financial Staff of Vanderheiden

question 8

Multiple Choice

Assume that you are on the financial staff of Vanderheiden Inc.,and you have collected the following data: The yield on the company's outstanding bonds is 7.75%,its tax rate is 40%,the next expected dividend is $0.65 a share,the dividend is expected to grow at a constant rate of 6.00% a year,the price of the stock is $15.00 per share,the flotation cost for selling new shares is F = 10%,and the target capital structure is 45% debt and 55% common equity.What is the firm's WACC,assuming it must issue new stock to finance its capital budget?

• A)6.89%
• B)7.26%
• C)7.64%
• D)8.04%
• E)8.44%

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