1. Tapley has a stock price of $88/share, a current dividend of $4/share, and a growth rate of 10%. Additionally, the flotation expenses it faces in the external markets will be tiered based on the volume of stock it sells and they range from a low of 10% to a middle cost of 15% to a high cost of 20%.
a) Cost of Equity for Retained Earnings (Show your Work):
b) Cost of Equity with a 10% flotation expense (Show your Work):
c) Cost of Equity with a 15% flotation expense (Show your Work):
d) Cost of Equity with a 20% flotation expense (Show your Work):
With all of the data above, please calculate (Show your Work):
WACC_{1} =
WACC_{2} =
WACC_{3} =
WACC_{4} =
WACC_{5} =
WACC_{6} =
Cost of Equity = 15%; Cost of Equity = 15.56%; Cost of Equity = 15.88% Cost of Equity = 16.25%
Cost of Equity capital = {(D1/Net Proceeds) +g}
Do | $ 4 | |||
Po | $ 88 | |||
g (in %) | 10% | |||
D1 = Do(1+g) | $ 4.4 | |||
Present (a) | 10% (b) | 15% (c) | 20% (d) | |
Flotation Cost (Po * Flotation cost in % | 0 | $ 8.80 | $ 13.20 | $ 17.60 |
Net Proceed (Po - Flotation Cost) | $ 88.00 | $ 79.20 | $ 74.80 | $ 70.40 |
D1 | $ 4.40 | $ 4.40 | $ 4.40 | $ 4.40 |
Growth Rate (g) | 10% | 10% | 10% | 10% |
Cost of Equity {(D1/Net Proceeds) +g} | 15.00% | 15.56% | 15.88% | 16.25% |
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