UInc. has a target capital structure of 50% debt and 50% common equity, with no preferred stock. The yield to maturity on the company’s outstanding bonds is 12%, and its tax rate is 30%.
(a) If UInc. cost of equity is 12%, what is it’s WACC?
(b) Assume that the company issues new common stock sells at $200 and the flotation cost is 5%. The company paid dividend $4 per share for last year and it is expected to grow at 9% per year. What is its WACC if equity capital is raised from this new issuing?