Question
Suppose Stratford Corp has a beta of 0.75. The market risk premium is 6 per cent, and the risk-free rate is 6 per cent. Stratford
Suppose Stratford Corp has a beta of 0.75. The market risk premium is 6 per cent, and the risk-free rate is 6 per cent. Stratford Corp last dividend was $50 per share, and the dividend is expected to grow at 5 per cent indefinitely. The stock currently sells for $500 per share. In addition to the information given in the previous problem, suppose Stratford Corp has a target debt-equity ratio of 75 per cent. Its cost of debt is 10 percent before taxes, and the tax rate is 25 per cent. What is the cost of equity? What is the cost of debt? What is the WACC?
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