Fall, FINC310Sa Foundations of Financial Management Test 3 S. Royal Mediterancan
ID: 2793549 • Letter: F
Question
Fall, FINC310Sa Foundations of Financial Management Test 3 S. Royal Mediterancan Cruise Line's common stock is seling fo nual rat comn 5. Royal Mediterranean Cruise Line's common dividend was $1.20, and dividends are expected to gro stf Royal's new stock sales are 7% of the selling price. What is the co stock isset a 5% annunew co w at a oyal's new o 6 You were hired as a consultant to Gamboo Company, whose target capital structure is 50% debt, 10% preferred, and 40% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 12.75%. The firm will not be issuing any new stock. What is its WACC?Explanation / Answer
Since the stock is trading at CMP = $22 and the last dividend being $1.2 the growth rate being 5%, thus
Cost of common stock =D0(1+growth rate)/Price(1-flotation cost)
=1.2(1.05)/22(1-.07)
=1.26/20.46
=6.16%
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