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Problem1. Robinson Company has the marginal tax rate of 40%. The firm can increase debt at a 12% interest rate and last dividend paid by the firm was $0.90. Robinson’s common stock is selling for $8.59 per share, and its anticipated growth rate in earnings and dividends is 5%. When Robinson issues new common stock, the flotation cost acquired will be 10%. The firm plans to financial all capital expenses with 30% debt and 70% equity.

problem1. What is Robinson's cost of retained earnings when it can use retained earnings rather than issue new common stock?

problem2. What is cost of the common equity increased by selling new stock?

problem3. What is the firm's WACC if the firm has adequate retained earnings to fund the equity portion of its capital budget?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M94257

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