Equity portion of financing is from sale of common stock

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Reference no: EM131385830

Acme Manufacturers, Inc. has a stock price of $50. In the fiscal year just ended, dividends were $2.00. Earnings per share and dividends are expected to increase at an annual rate of 8 percent. The risk-free rate is 4 percent, the market risk premium is 6.4 percent and the beta on Delta’s stock is 1.25. Delta’s target capital structure is 40% debt and 60% common equity. Delta’s tax rate is 40 percent.

New common stock can be sold to net $40 per share after flotation costs. Delta can sell bonds that mature in 25 years with a par value of $1,000 and an 8% coupon rate paid annually for $960. Calculate the WACC if the equity portion of financing is from the sale of common stock.

Reference no: EM131385830

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