Allia’s Co. has a capital structure that consists of $75,000 common equity and $40,000 of long-term debt.
• The company estimates that it can issue debt at a before tax cost of 9%, and its tax rate is 40%.
• The company’s common stock currently sells at $30 per share. The year-end dividend, , is expected to be $2.50, and the dividend is expected to grow at a constant rate of 6% per year.
Questions 6→10 refers to Case Two.
6. Allia’s weight of debt is:
7. Allia’s weight of common equity is:
8. The after tax cost of debt for Allia’s is:
9. The cost of common equity for Allia’s is:
10. The Weighted Average Cost of Capital for Allia’s is: