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A company has determined that its optimal capital structure consists of 40 percent debt and 60...

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Finance

A company has determined that its optimal capital structureconsists of 40 percent debt and 60 percent equity. Given thefollowing information, calculate the firm's weighted average costof capital. Cost of Debt = 7.0%, Tax rate = 40%, Current StockPrice = $23.72, Long Run Growth rate = 3.8%, Next Year's Dividend =$2.26. Show your answer to the nearest .1%. Do not use the % signin your answer. Enter your answer as a whole number, thus 9.2%would be 9.2 rather than .092 or 9.2%.

Answer & Explanation Solved by verified expert
3.5 Ratings (471 Votes)
Solution Calculation of Cost of Equity As per the Gordon growth Model price of a share of a firm is calculated using the following formula P D1 ke g Where P Price of the share D1 Dividend paid next year g    See Answer
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Transcribed Image Text

A company has determined that its optimal capital structureconsists of 40 percent debt and 60 percent equity. Given thefollowing information, calculate the firm's weighted average costof capital. Cost of Debt = 7.0%, Tax rate = 40%, Current StockPrice = $23.72, Long Run Growth rate = 3.8%, Next Year's Dividend =$2.26. Show your answer to the nearest .1%. Do not use the % signin your answer. Enter your answer as a whole number, thus 9.2%would be 9.2 rather than .092 or 9.2%.

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