Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 12%, and its marginal tax rate is 40%. The current stock price is P₀= $22.50. The last dividend was D₀= $2.00, and it is expected to grow at a 7% constant rate. What is its cost of common equity and its WACC?

Please note the cost of common equity is 16.51%.

Please use the following for finding the WACC (common equity) using the formula : WACC= wD*rD *(1-t) +wE * rE

(please show steps)

1. w = the respective weight of debt, preferredstock/equity, andequityin the total capital structure.
2. t = tax rate.
3. D = cost of debt.
4. E = cost of equity