Stock need to be for the firm to issue the new shares

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Reference no: EM131347912

1. Gulf Coast Tours currently has a weighted average cost of capital of 12.4 percent based on a combination of debt and equity financing. The firm has no preferred stock. The current debt-equity ratio is .47 and the aftertax cost of debt is 6.1 percent. The company just hired a new president who is considering eliminating all debt financing. All else constant, what will the firm's cost of capital be if the firm switches to an all-equity firm?

12.89 percent

15.45 percent

12.92 percent

13.37 percent

15.36 percent

2. Tennessee Valley Antiques would like to issue new equity shares if its cost of equity declines to 12.5 percent. The company pays a constant annual dividend of $2.10 per share. What does the market price of the stock need to be for the firm to issue the new shares?

$15.10

$15.60

$18.40

$17.90

$16.80

Reference no: EM131347912

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