Question
The Woodsburg Co. maintains a debt-equity ratio of .60 and has a tax rate of 35 percent. The firm does not issue preferred stock. The
The Woodsburg Co. maintains a debt-equity ratio of .60 and has a tax rate of 35 percent. The firm does not issue preferred stock. The firm's pre-tax cost of debt is 8.75 percent. Woodsburg Co. has 20,000 shares of stock outstanding with a beta of .9 and a market price of $30. The current market risk premium is 7 percent and the current risk-free rate is 3 percent. Last month, Woodsburg Co. issued an annual dividend in the amount of $1.25 per share. Dividends are expected to grow at 2 percent indefinitely. Using an average expected cost of equity, what is Woodsburg's weighted average cost of capital?
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