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Cypress Corporation had net income of $40,000 this year. The marginal tax rate is 40% and the dividend payout ratio is 30%. Cypress bonds currently sell at 95 with a 20 year maturity and an annual coupon rate of 7%. The last dividend paid on Cypress common stock was $0.90. Cypress common stock currently sells for $8.59. The expected growth rate is 5%. If Cypress issues new common stock the flotation cost will be 10%. Cypress has determined its optimal capital structure is 30% debt and 70% equity. What is the weighted average cost of capital for Cypress? What is the significance of this number?

Basic Finance, Finance

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