Question
Hertha BSC Company has a capital structure, which consists of 60 percent long-term debt and 40 percent common stock. The companys CFO has obtained the
Hertha BSC Company has a capital structure, which consists of 60 percent long-term debt and 40 percent common stock. The companys CFO has obtained the following information:
The companys bonds are selling for $1000 per bond with coupon rate of 8% and maturity value of $1,000.The bond will be matured in 20 years.
The companys common stock is expected to pay a $3.00 dividend at year end, and the dividend is expected to grow at a constant rate of 7 percent a year. The common stock currently sells for $60 a share.
Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget.
The companys tax rate is 40 percent.
What is the companys weighted average cost of capital (WACC)?
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