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The target capital structure of a company consists of 45% debt and 55% equity. The company is considered to be a low-risk with a
The target capital structure of a company consists of 45% debt and 55% equity. The company is considered to be a low-risk with a beta of 0.95. The market risk premium is 7.5%. Current share price of the company is $60 and the most recent dividend was $4.25. The market expects dividends to grown at 4.0% for the foreseeable future. The company only outstanding bond issue has 10 years to maturity, pays semi-annual coupons at 5%, has a yield-to-maturity of 5.66%, and sells for 95% of par. The company tax is 25% and government bonds are yielding 3.5%. A) What is the company after-tax cost of debit? B) What is the company cost of equity? C) What is the WACC (Weighted Average Cost of Capital)
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