Question
Vanessa Inc has a beta of .7. The market risk premium is 8% and risk-free rate is 5%. Vanessa Incs last dividend was $1.20 per
Vanessa Inc has a beta of .7. The market risk premium is 8% and risk-free rate is 5%. Vanessa Incs last dividend was $1.20 per share, and the dividend is expected to grow at 7% indefinitely. The stock price is currently $40. Vanessa Incs target capital structure is 30% debt and 70% equity. It cost of debt is 10% before taxes. The tax rate is 40%.
a) Calculate the cost of equity under:
- The dividend growth
- CAPM
- Average of the two approaches
b) Using the average cost of equity calculated previously, what is the WACC
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Personal Finance
Authors: E Thomas Garman, Raymond Forgue
11th Edition
1111531013, 9781111531010
