Calculate the weighted average cost of capital assuming Meacham's total capital budget is $30 million.

Extracted text: Calculate the weighted average cost of capital assuming Meacham's total capital budget is $30 million.


Extracted text: Meacham Corp. wants to issue bonds with a 9% semi-annual coupon, a face value of $1,000, and 12 years to maturity. Meacham estimates that the bonds will sell for $1,090. Meacham Corp. common stock currently sells for $30 per share. Meacham can sell additional shares by incurring flotation costs of $3 per share. Meacham paid a dividend yesterday of $4.00 per share and expects the dividend to grow at a constant rate of 5% per year. Meacham also expects to have $12 million of retained earnings available for use in capital budgeting projects during the coming year. Meacham's management team decides to replace all common stock with newly issued ones and form a capital structure with 40% debt and 60% common equity. Meacham's marginal tax rate is 35%.