Question
25. Hilliard Corp. wants to calculate its weighted average cost of capital (WACC). The companys CFO has collected the following information: The companys long-term bonds
25. Hilliard Corp. wants to calculate its weighted average cost of capital (WACC). The companys CFO has collected the following information: The companys long-term bonds currently offer a yield to maturity of 8 percent. The companys stock price is $32 per share (P0 = $32). The company recently paid a dividend of $2 per share (D0 = $2.00). The dividend is expected to grow at a constant rate of 6 percent a year (g = 6%). The company pays a 10 percent flotation cost whenever it issues new common stock (F = 10%). The companys target capital structure is 75 percent equity and 25 percent debt. The companys tax rate is 40 percent. The company anticipates issuing new common stock during the upcoming year.
What is the companys WACC?
A. 10.67%
B. 11.22%
C. 11.47%
D. 12.02%
E. 12.56%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started