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Category > Business & Finance Posted 16 May 2017 My Price 6.00

Dobson Dairies has a capital structure that consists of 60 percen

Dobson Dairies has a capital structure that consists of 60 percent long-term debt and 40 percent common stock. The company’s CFO has obtained the following information:

·         The before-tax yield to maturity on the company’s bonds is 8 percent.

·         The company’s common stock is expected to pay a $3.00 dividend at year end (D1 = $3.00), and the dividend is expected to grow at a constant rate of 7 percent a year. The common stock currently sells for $60 a share.

·         Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget.

·         The company’s tax rate is 40 percent.

What is the company’s weighted average cost of capital (WACC)?

a.   12.00%                     b.   8.03%                   c.   9.34%                   d.   7.68%

 

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Status NEW Posted 16 May 2017 06:05 PM My Price 6.00

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