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.
A) What is the firm's WACC, assuming it must issue new stock to finance its capital budget?
B) Based in the waccabtain in part (a) which project//, if any, should be selected. Explain what is your decision?
C) Based on your selection in part (b) what is the capital budget for the next planing period?