calculate the cost of equity USING the Dividend Growth Model

LO 3 17. Calculating the WACC You are given the following information concerning Parrothead Enterprises: Debt: 13,000 6.4 percent coupon bonds outstanding, with 15 years to maturity and a quoted price of 107. These bonds pay interest semiannually. Common stock: 345,000 shares of common stock selling for $76.50 per share. The stock has a beta of .90 and will pay a dividend of $3.80 next year. The dividend is expected to grow by 5 percent per year indefinitely. Preferred stock: 10,000 shares of 4.4 percent preferred stock selling at $86 per share. Market: 11 percent expected return, risk-free rate of 3.6 percent, and a 22 percent tax rate