Question
Watta Company has only common equity and bonds. You are asked to estimate Watta Companys WACC and you have the following information: Wattas last stock
Watta Company has only common equity and bonds. You are asked to estimate Watta Companys WACC and you have the following information: Wattas last stock dividend was $1 per share. Its dividend is expected to grow at 10% indefinitely. The stock currently sells for $50 per share. Watta has a target debt-equity ratio of 0.40/0.60 and it can sell 10-year coupon bonds with a coupon rate of 9% at the par value. The average going market interest rate for all other companies debts currently is 10%. If the tax rate is 21%, what is the WACC for Watta? (The company does not have any preferred stocks).
Please show work. Thanks!
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