Question
Growth Company's current share price is $ 20.05 and it is expected to pay a $ 1.10 dividend per share next year. After that, the
Growth Company's current share price is $ 20.05 and it is expected to pay a $ 1.10 dividend per share next year. After that, the firm's dividends are expected to grow at a rate of 3.7 % 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 $ 2.30 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 5.8 % . The firm just issued new debt at par with a coupon rate of 6.5 % . What is Growth Company's cost of debt? d. Growth Company has 4.9 million common shares outstanding and 1.5 million preferred shares outstanding, and its equity has a total book value of $ 49.9 million. Its liabilities have a market value of $ 20.5 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 40 % 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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