To maintain the present capital structure how much of the

Reference no: EM13460873

Jan. 1 the total market value of the Tysseland Co. was $60 million. During the first year the company plans to raise & invest $30 million in new projects. The firms present market value structure is considered to be optimal. Assume that there is no short-term debt: Debt $30 million + common equity $30 million = $60 million total capital. New bonds will have a 8% coupon rate & they will be sold at par. Common stock is currently selling at $30 a share. Stockholders' required rate of return expected constant growth rate of 8%. (the next expected dividend pymt is $1.20, so $1.20/$30 = 4%)

a. to maintain the present capital structure, how much of the new investment must be financed by common equity? the answer is $15,000,000 how do I arrive at this number?

b. Assume there is sufficient cashflow so the co. can maintain its target capital structure w/o issuing additional shares of equity. what is the WACC? answer is 8.4%, how do I arrive at this number?

Reference no: EM13460873

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