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The company has a capital structure that consists of 50% debt and 50% common stock the company’s CFO has obtained the following information: The yield to maturity on the company’s bonds is 7% The coupon rate on the company’s bonds is 5% The next expected dividend is expected to be $7.00 The dividend is expected to grow at a constant rate of 5% per year The stock price is currently $75 per share The tax rate is 35% What is the WACC? brainly

Respuesta :

Answer:

9.44%

Explanation:

Market price = Next dividend/(return on equity - growth rate)

Therefore, we have:

$75 = $7 / (Return on equity - 5%)

(Return on equity - 5%) * $75 = $7

(Return on equity * $75) - (75$ * 5%) = $7

(Return on equity * $75) - $3.75 = $7

(Return on equity * $75)  = $7 + $3.75

Return on equity = $10.75 / $75 = 0.1433, or 14.33%

WACC = (50% * 14.33%) + [(50% * 7% * (100% - 35%)] = 9.44%

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