Question
Gold Diggers, Inc. has 800,000 shares of common stock, currently trading at $45/share. The common stock of Gold Diggers, Inc. is expected to generate a
Gold Diggers, Inc. has 800,000 shares of common stock, currently trading at $45/share. The common stock of Gold Diggers, Inc. is expected to generate a dividend of $3.00/share next year, and it has a Beta calculated at .95. It also has 10,000 shares of preferred stock, trading at $90/share. The preferred stock pays dividends of 11%. Finally, Gold Diggers, Inc. has 57,000 bonds currently trading at $1020/bond. The coupon rate is 6%, and the bonds will mature in 5 years.
Gold Diggers, Inc. expects its dividends to grow at a rate of 8%/year, and it is in a 34% tax bracket. It estimates that the risk free rate of return is 5.5% and the market rate of return is 12%.
Calculate the WACC for Gold Diggers, Inc. Be sure to show all your work. NOTE: When calculating the cost of equity, compute the cost using the CAPM method and the DCF (Dividend Constant Growth Method) and average the two.
The answer
Weight ofEquity = 37.88%
Weight of preferred stock capital = 95%
Weight of debt = 61.17%
cost of equity = 13.17%
cost of preferred stock = 12.22%
Cost of dept = 5.54%
WACC = 7.34%
Plase show me how to get all these number.
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