Assume That You Are on the Financial Staff of Vanderheiden

Multiple Choice

Assume that you are on the financial staff of Vanderheiden Inc.,and you have collected the following data: The yield on the company's outstanding bonds is 7.75%,its tax rate is 40%,the next expected dividend is $0.65 a share,the dividend is expected to grow at a constant rate of 6.00% a year,the price of the stock is $15.00 per share,the flotation cost for selling new shares is F = 10%,and the target capital structure is 45% debt and 55% common equity.What is the firm's WACC,assuming it must issue new stock to finance its capital budget?

A) 6.89%
B) 7.26%
C) 7.64%
D) 8.04%
E) 8.44%