RECOMMENDED!!Heavy Metal Corp is a steel manufacturer that finances its operations with 40% debt
Heavy Metal Corp is a steel manufacturer that finances its
operations with 40% debt, 10% preferred stock, and 50% equity. The interest
rate on the company’s debt is 11%. The preferred stock pays an annual dividend
of $2 and sells for $20 a share.
The company’s common stock trades at $30 a share, and its
current dividend (D0) of $2 a share is expected to grow at a constant rate of
8% per year.
The flotation cost of external equity is 15% of the dollar
amount issued, while the flotation cost on preferred stock is 10%.
The company estimates that its WACC is 12.3%. Assume that
the firm will not have enough retained earnings to fund the equity portion of
its capital budget. WHAT IS THE COMPANY’S TAX RATE?
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