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A company has determined that its optimal capital structure is 40% debt 60% equity. Firm does...

A company has determined that its optimal capital structure is 40% debt 60% equity. Firm does not have sufficient RE to fund equity in the capital budget, cost of capital has to be adjusted for flotation. What is the WACC?

Company has 15 Year, 6% annual coupon bonds, with a face value of $1,000 and sells for $980.

Net Income = $250,000

Payout Ratio = 10%

Tax Rate = 40%

Po = $25

Growth = 0%

Shares outstanding = 10000

Flotation Cost of Equity = 5%

A, 7.60%

B. 7.81%

C. 6.82%

D. 7.00%

E. 7.32%

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The answer is B) 7.81%

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