ACC501 GDB No. 3 Solution
Monday, July 04, 2011 Posted In Acc Edit This| Semester “Spring 2011” | |
| “Business Finance (ACC501)” This is to inform that Graded Discussion Board #03 (GDB #03) has opened according to the following schedule | |
| Schedule | |
| Opening Date and Time | June30th , 2011 At 12:01 A.M. (Mid-Night) |
| Closing Date and Time | July 4th , 2011 At 11:59 P.M. (Mid-Night) |
| Note: No extra or bonus/grace period is available for attempting GBD. | |
| “Discussion Question” | |
| T & S manufacturer is interested to measure its overall cost of capital. Firm raised capital through long term debt and Common Stocks. Weights of capital structure components are 45% for long term debt and 55% for common stocks. The firm is in the 40% tax bracket. Common Stock: the firm’s common stock is currently selling Rs. 500 per share. The firm expects to pay cash dividend Rs. 37.5 per share next year. The firm dividend has been growing at an annual rate of 6% and this rate is expected to continue in the future. Long term Debt: Firm raised capital by issuing 10 years bonds at par value Rs. 1,000 with 8% coupon rate (coupons are paid annually). Bond is traded at Rs. 900 in market. Cost of debt after tax is 5.80 %. You are required to answer the following: Cost of Common Stock (Provide your answer in percentage and up to two decimal) WACC (Provide your answer in percentage and up to two decimal) NOTE: Only provide answer. Working is NOT requied. | |
SOLUTION:
Answer. 1 Cost of common cost is =13.5%
Answer. 2 WACC=8.991%
Answer. 2 WACC=8.991%
