Question

9. Wal-Mart plans to open a new store near JU. Wal-Mart is going to finance via bond market and stock market. Total capital required is 10 million dollars. 3 million dollars are going to be borrowed from the bond market. This 3% annual coupon bond is traded in the market for $950 and is going to be matured in 10 years. There is no flotation fee. Tax rate is 30%. 7 million dollars are going to be financed via stock market. Wal-Mart plans to pay $3 per share next year. The dividend is expected to grow at the rate of 5% each year. The stock is traded at $60 per share The flotation fee is 5%. How much is the WACC? 7.51% 6.08% 8.11% pleand pick the louit one a 7.66%

Answer 1

average cost computation of weighted of capital (WAC) WACC = cost of equityx weight of equity ? Total weight cost of debt t weight of debt Total weight cost of Equity (ke) share Dividend per kerg ke-0.05 $60 (ke-0.05 = $3. $60ke - 83 = $ 3 . & Goke a $6 ke = 10%

cost of debt - 3.1. Tan rate - 30.1. After tax cost of debt = 3x0.7 = 2 .1.1 WACC = 10x 7 & 2018 3 10 WACC = 7.63.). Lappropeimodely 7:667) 10 .. option -di 7.661