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Clorox wants to pursue a project that will broaden the markets in which they currently...

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Finance

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Clorox wants to pursue a project that will broaden the markets in which they currently participate. They want to know what they should use for a hurdle rate or WACC (weighted average cost of capital). You get the following information from their accountunt: There are currently 20 year 5.7% coupon bonds, with a face value of $1,000, that pay semiannual payments and are non-callable available at a price of $985. Preferred stock sells for $245 and pays an annual dividend of $17.50. Clorox has a current stock price of $156.23 per share. The stock has a Beta of .27 and pays a dividend of $4.72 per year. The current risk free nate is 3.5% and the market risk premium is 6.33%. The dividend growth rate is expected to be 3.5% a year. The bond-yield risk premium is 125% Clorox has a target capital structure of 40% debt, 10% preferred stock and 50% common equity. Clorox has a tax rate of 21.55% Using the Clorox information provided, what is the cost of their preferred stock? A. 2.16% B. 4.93% C. 5.67% D. 7.14%

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