Problem
A. What is weighted average cost of capital (WACC)
B. What is marginal Cost of Capital (MCC)
C. Halo Hot Air Balloons is expected to grow at 5 percent forever. Its common stock is currently selling for $28 per share, and the most recent dividend paid to common stockholders was $2.40 per share. IF Halos cost of new common equity is 15 percent, what is the flotation cost charged by its investment banker.
D. Explain what the break point is?
E. Energetic Engines is trying to estimate its cost of retained earnings. The company has outstanding bonds that pay $20 interest every six months. Each bond, which has a $1,000 face value and matures in six years, is currently selling for $900. Estimate Energetic cost of retained earnings using the bond-plus-risk-premium approach.
F. Define flotation costs.