Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Rankin Pharmaceutical Company maintains a debt-equity ratio of 0.65 and has a tax rate of 32 percent. The firm does not issue preferred stock. The

Rankin Pharmaceutical Company maintains a debt-equity ratio of 0.65 and has a tax rate of 32 percent. The firm does not issue preferred stock. The pre-tax cost of debt is 9.8 percent. There are 25,000 shares of stock outstanding with a beta of 1.2 and a market price of $19 a share. The current market risk premium is 8.5 percent and the current risk-free rate is 3.6 percent. This year, the firm paid an annual dividend of $1.10 a share and expects to increase that amount by 2 percent each year. Using an average expected cost of equity, what is the weighted average cost of capital?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored 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

Recommended Textbook for

Entrepreneurial Finance

Authors: J. Chris Leach, Ronald W. Melicher

6th edition

1305968352, 978-1337635653, 978-1305968356

More Books

Students also viewed these Finance questions

Question

What type of office space and equipment are provided?

Answered: 1 week ago

Question

Determine miller indices of plane A Z a/2 X a/2 a/2 Y

Answered: 1 week ago

Question

Describe the limitations of functional-based cost systems.

Answered: 1 week ago

Question

What is a consumption ratio?

Answered: 1 week ago

Question

Describe an activity-based relational database.

Answered: 1 week ago