Answer:
The firm's WACC will be "8.04%".
Explanation:
The given values are:
Yield of maturity,
= 7.75%
Rate of tax,
= 40%
Next year's dividend,
= $o.65
Growth,
= 6%
Share price,
= $15
Flotation cost,
= 10%
[tex]w_d=45 \ percent[/tex]
[tex]w_s=55 \ percent[/tex]
Now,
= [tex]r_d(1-Rate \ of \ tax)[/tex]
On substituting the values, we get
= [tex]7.75(1-0.40)[/tex]
= [tex]4.65 \ percent[/tex]
The [tex]r_e[/tex] will be:
= [tex]\frac{D1}{p}\times (1-F)+G[/tex]
= [tex]\frac{0.65}{15}\times (1-0.1)+6[/tex]
= [tex]4.81+6[/tex]
= [tex]10.81 \ percent[/tex]
hence,
The firm's WACC will be:
= [tex]w_d(r_d)(1-T)+w_s(r_s)[/tex]
= [tex]0.45\times 4.65+0.55\times 10.81[/tex]
= [tex]2.0925+5.9455[/tex]
= [tex]8.04[/tex]%
