Byron corporation's target capital structure consists of 40% debt and 60% common equity. assume that the firm has no retained earnings. the company's last dividend (D0) was $2, which is expected to grow at a constant rate of 4%; and the current stock price is $21.88. Baryon can raise all the debt financing it needs at 14%. if byron issues new common stock, a 20% flotation cost will be incurred. the firm's tax rate is 40%.
1. what is the component cost of the equity raised by selling new common stock?
a. 17.0%
b. 16.4%
c. 16.0%
d. 14.6%
e. 12.0%
2. what is the firm's WACC?
a. 12.96%
b. 13.56%
c. 14.25%
d. 16.41%
e. 18.10%