Question

- Assume that my optimal capital structure consists of 45% debt
and 55% equity. I have $1,000 outstanding bonds. Given the
following information,
**calculate the firm’s WACC**.

r_{d}= 8%.

EBT = $100,000.

Payout ratio = 55%.

Tax rate = 30%.

P_{0}= $25.

Growth = 1%.

Shares outstanding = 10,000.

**Flotation cost on additional
equity = 15%.**

Answer #1

Charmant Kems, the Canadian, has an optimal
capital structure consists of 60% debt and 40% equity. Charnant
will not have enough retained earnings to fund the equity portion
of its capital budget, and the cost of capital is adjusted to
account for flotation costs. Given the following information,
calculate the firm’s WACC.
rd = 8%.
Net income = $40,000.
Payout ratio = 80%.
Tax rate = 45%.
P0 = $25.
Growth = 0%.
Shares outstanding = 10,000.
Flotation cost on...

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