Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

NEED HELP PLEASE Gold Diggers, Inc. has 652,000 shares of common stock, currently trading at $90.52/share. The common stock of Gold Diggers, Inc. is expected

NEED HELP PLEASE

Gold Diggers, Inc. has 652,000 shares of common stock, currently trading at $90.52/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 1.95. It also has 10,000 shares of preferred stock, trading at $120/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 8 years. Gold Diggers, Inc. expects its dividends to grow at a rate of 12% per year, and it is in a 21% 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.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions