Question
You are in charge of estimating you companys weighted average cost of capital. The company's target capital structure is 30% debt, 20% preferred stock, and
You are in charge of estimating you companys weighted average cost of capital. The company's target capital structure is 30% debt, 20% preferred stock, and 50% common stock. Its current before-tax cost of debt is 7.7%, and flotation cost for debt can be ignored. Its preferred stock has a before-tax cost of 12.6%. The company has just paid a common stock dividend (Do) of $4.77 and expects to have a constant dividend growth rate of 6%. Its common stock currently sells for $30 per share. Flotation cost on new common stock would total 5.2%. Its tax rate is 40%. Compute (a) the company's cost of newly issued common stock (using the Dividend Growth Model) and (b) the companys WACC when the newly issued common stock is used as the common equity component. Round your answers to two decimal places of %,
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