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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 25%, 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 $14.00 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. 9.62% b. 8.92%
c. 8.24% d. 8.09% e. 8.75%

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Assume that you are on the financial staff of Vanderheiden Inc., and.pdf

  • 1. 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 25%, 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 $14.00 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. 9.62% b. 8.92% c. 8.24% d. 8.09% e. 8.75%