Question
Use the following information to answer question 7 through 9: Bloop Inc. has a target capital structure of 30% of debt and 70% in common
Use the following information to answer question 7 through 9: Bloop Inc. has a target capital structure of 30% of debt and 70% in common equity. The firm has no preferred stock. Bloops before-tax (pretax) cost of debt is 12% and its marginal tax rate is 30%. The beta of Bloops common equity is 1.00, the market risk premium (MRP) is 6% and the U.S. risk-free rate is 5%. Bloops common stock is currently trading at $35.00 per share and the next dividend to be paid (D1) is $3.50 per share. Future dividends are expected to grow at g=5%.
1) Using the CAPM approach the cost of equity of Bloop Inc. is
2) Based on the Gordon Growth model, what is the cost of equity of Bloop Inc.?
3) If the cost of equity of Bloop Inc were 13%, what is the firms Weighted Average Cost of Capital (WACC)?
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