Question

nituen beak han hon bands VRE in an end. A company wishes to fund a new project. The total co from a bank loan, 12 million will be funded earnings and the rest from com the rest from common stock with dividends. The bank loan will be 12% per year con yearly with quarterly payments. Dividends will dollars. The combined tax rate is 35%. What is must show your calculations in detail. ect. The total cost will be 40 million. 10 million will be Funded from bonds. 10 million will come from retained per year compounded monthly. The bond financing will be 8% vidends will be 500 each year will the price per share of 4300 5%. What is the weighted Average Cost of Capital.? You WALC = (El Vie +(010); d (1-;)

Answer 1

solution ;- Full form of terms used in answer

I = Interest rate

n = No. of times interest compunded in t

t = time/ tax rate

Page 2 - Cost of equity (ke) Di X 100 Po 500 x 100 4300 211.63% Cost of requity is also used for cost of retained cannings.

Page 3 WACC = 10 8.042%+ 12 X 5.3566740X11:634 40 40 + 8 x 11.63% 40 2 8 9% (P.A)

Page 1 a lot of bank foon before they [114.)" - 1 1x12 =((1+0.0172-1874 100 2 [1,1268 - 1] x 100 =_01268 xloo 2 19.68 of bir oftertax (kd) Illt) - 19.687. (1-0.35) 8 .2424 Cost of bank loan 0 nt a t a bond (ko) before tex = f(1+39 - yuce Tlto:odge - 1] xico 11.0624) - 1Jx100 0 0.0624 Xivo 2 8.24 % offer tax (kella 8. 24 (1-0.35) - 5.356% Cost of bond