A firm\'s new bonds will have a 12% coupon. The current price of common shares i

Question

A firm's new bonds will have a 12% coupon. The current price of common shares is $40.00; the most recent dividend was $2.00. The firm's tax rate is 35%. The firm is expected to grow at 9% for the foreseeable future. What is their cost of equity (retained earnings)? Remember that D0 is not the same as D1.

A company has an after tax cost of debt of 7% and a 17% cost of equity. From the capital section of their balance sheet below, calculate their weighted average cost of capital.
LT Debt 4500
Equity 7500

Explanation / Answer

c . 9.00 %

b . 10.8 %

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