Question: the kenny company has 10000 bonds outstanding the bonds are...
The Kenny Company has 10,000 bonds outstanding. The bonds are selling at 98% of face value, have a 10% coupon rate, pay interest semi-annually, and mature in 9 years. There are 1.87 million shares of common stock outstanding with a market price of $15 a share and a beta of 0.89. The common stock just paid a dividend of $0.7474 and expects to increase those dividends by 1.35% annually. The flotation cost for equity is 6.5% and the flotation cost for debt is 4.5%. The firm's marginal tax rate is 34%. The market risk premium is 5.5% and the Treasury bill rate is 1.5%. The company’s initial investment for a new project is $1,915,070.
- What is the cost of equity based on the dividend growth model? (6.4%)
- What is the after-tax cost of debt financing? (6.82%)
- What is the company’s weighted average cost of capital? (6.51%)
What is the company’s initial investment after taking the flotation costs into account.