PYC Limited is a manufacturing company and it has a capital structure of 65% debt and 35% equity. The firm’s 15 year, 18% annual bonds sell for R 1,150 each while its common stock currently sells for R 45 per share. The firm recently paid a dividend of R 10 per share on its common stock and the dividend is expected to grow indefinitely at a constant rate of 2% per annum. Assuming the firm’s tax rate is 40%; a) What is the firm’s after-tax cost of debt? b) What is the firm’s cost of common stock? c) Calculate the firm’s weighted average cost of capital ?
PYC Limited is a manufacturing company and it has a capital structure of 65% debt and 35% equity. The firm’s 15 year, 18% annual bonds sell for R 1,150 each while its common stock currently sells for R 45 per share. The firm recently paid a dividend of R 10 per share on its common stock and the dividend is expected to grow indefinitely at a constant rate of 2% per annum. Assuming the firm’s tax rate is 40%; a) What is the firm’s after-tax cost of debt? b) What is the firm’s cost of common stock? c) Calculate the firm’s weighted average cost of capital ?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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PYC Limited is a manufacturing company and it has a capital structure of 65% debt and 35% equity. The firm’s 15 year, 18% annual bonds sell for R 1,150 each while its common stock currently sells for R 45 per share. The firm recently paid a dividend of R 10 per share on its common stock and the dividend is expected to grow indefinitely at a constant rate of 2% per annum. Assuming the firm’s tax rate is 40%;
a) What is the firm’s after-tax cost of debt?
b) What is the firm’s cost of common stock?
c) Calculate the firm’s weighted average cost of capital ?
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