Cost of equity raised by selling new common stock

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Reference no: EM131904245

Byron corporation's target capital structure consists of 40% debt and 60% common equity. assume that the firm has no retained earnings. the company's last dividend (D0) was $2, which is expected to grow at a constant rate of 4%; and the current stock price is $21.88. Baryon can raise all the debt financing it needs at 14%. if byron issues new common stock, a 20% flotation cost will be incurred. the firm's tax rate is 40%.

1. what is the component cost of the equity raised by selling new common stock?

a. 17.0%

b. 16.4%

c. 16.0%

d. 14.6%

e. 12.0%

2. what is the firm's WACC?

a. 12.96%

b. 13.56%

c. 14.25%

d. 16.41%

e. 18.10%

Reference no: EM131904245

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