Question
Growth Company's current share price is $ 19.85 and it is expected to pay a $ 1.00 dividend per share next year. After that, the
Growth Company's current share price is $ 19.85 and it is expected to pay a $ 1.00 dividend per share next year. After that, the firm's dividends are expected to grow at a rate of 4.3 % per year. a. What is an estimate of Growth Company's cost of equity? b. Growth Company also has preferred stock outstanding that pays a $ 2.00 per share fixed dividend. If this stock is currently priced at $ 28.10, what is Growth Company's cost of preferred stock? c. Growth Company has existing debt issued three years ago with a coupon rate of 6.1 %.The firm just issued new debt at par with a coupon rate of 6.6 %. What is Growth Company's cost of debt? d. Growth Company has 4.7million common shares outstanding and 1.4 million preferred shares outstanding, and its equity has a total book value of $ 50.3 million. Its liabilities have a market value of $ 19.6 million. If Growth Company's common and preferred shares are priced as in parts (a) and (b), what is the market value of Growth Company's assets? e. Growth Company faces a 35 %tax rate. Given the information in parts (a) through (d), and your answers to those problems, what is Growth Company's WACC?
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