Your Company's Stock Sells for $50 Per Share,its Last Dividend

question 91

Multiple Choice

Your company's stock sells for $50 per share,its last dividend (D₀) was $2.00,its growth rate is a constant 5 percent,and the company would incur a flotation cost of 15 percent if it sold new common stock.Net income for the coming year is expected to be $500,000 and the firm's payout ratio is 60 percent.The firm's common equity ratio is 30 percent and it has no preferred stock outstanding.The firm can borrow up to $300,000 at an interest rate of 7 percent;any additional debt will have an interest rate of 9 percent.Your company's tax rate is 40 percent.If the firm has a capital budget of $1,000,000,what is the WACC for the last dollar of capital the company raises?

• A) 3.78%
• B) 6.76%
• C) 9.94%
• D) 11.81%
• E) 13.25%

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Definitions:

Sequences

Ordered sets of elements or events following a specific rule or arrangement.

Hydrogen Bonds

An electrostatically driven, fragile linkage occurs between two molecules when a proton from one molecule attracts an electronegative atom in another.

Guanine

One of the four main nucleobases found in the nucleic acids DNA and RNA, which pairs with cytosine.

Adenine

A nitrogenous purine base that is a component of nucleic acids and ATP.