Gold Diggers, Inc. has 350,000 shares of common stock, currently trading at $26/share. The common stock...

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Gold Diggers, Inc. has 350,000 shares of common stock, currentlytrading at $26/share. The common stock of Gold Diggers, Inc. isexpected to generate a dividend of $2.00/share next year, and ithas a Beta calculated at 1.2. It also has 100,000 shares ofpreferred stock, trading at $50/share. The preferred stock paysdividends of 7%. Finally, Gold Diggers, Inc. has 30,000 bondscurrently trading at $960/bond. The coupon rate is 5%, and thebonds will mature in 8 years.

Gold Diggers, Inc. expects its dividends to grow at a rate of6%/year, and it is in a 34% tax bracket. It estimates that therisk-free rate of return is 3% and the market rate of return is7%.
Calculate the WACC for Gold Diggers, Inc. Be sure to show allyour work. NOTE: When calculating the cost of equity, compute thecost using the CAPM method and the DCF (Dividend Constant GrowthMethod) and average the two.

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Equity Number of Common Shares 350000 Share Price P0 26 RiskFree Rate Rf 3 Market Return Rm 7 and Beta 12 Dividend Growth Rate g 6 Expected Dividend D1 2 Let the CAPM cost of equity be r1 r1 Rf Beta x Rm Rf 3 12 x 73 78 Let the cost of equity using See Answer

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Gold Diggers, Inc. has 350,000 shares of common stock, currentlytrading at $26/share. The common stock of Gold Diggers, Inc. isexpected to generate a dividend of $2.00/share next year, and ithas a Beta calculated at 1.2. It also has 100,000 shares ofpreferred stock, trading at $50/share. The preferred stock paysdividends of 7%. Finally, Gold Diggers, Inc. has 30,000 bondscurrently trading at $960/bond. The coupon rate is 5%, and thebonds will mature in 8 years.Gold Diggers, Inc. expects its dividends to grow at a rate of6%/year, and it is in a 34% tax bracket. It estimates that therisk-free rate of return is 3% and the market rate of return is7%.Calculate the WACC for Gold Diggers, Inc. Be sure to show allyour work. NOTE: When calculating the cost of equity, compute thecost using the CAPM method and the DCF (Dividend Constant GrowthMethod) and average the two.