Question
XYZ company has a capital structure made up of 25 percent debt and 75 percent common equity. Their bonds have a $1,000 par value, a
XYZ company has a capital structure made up of 25 percent debt and 75 percent common equity. Their bonds have a $1,000 par value, a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,025. Their beta is 2.2, the risk-free rate is 3 percent, and the market risk premium is 6 percent. The company will pay a dividend of $2.00 next year and these dividends are expected to grow at 5.089% forever. The firms stock price is $18.00. The firm's marginal tax rate is 40 percent. Calculate the weighted average cost of capital (WACC).
Answer options:
14.4%
13.4%
none of these are correct
13.0%
13.9%
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