You have been asked to calculate a firms WACC (weighted average cost of capital). The information you have gathered so far includes:

• The firms ROE is 10% and its Payout Ratio is 60% (g = ROE x (1 - Payout Ratio))
• The firm has 10 million shares outstanding, each of which trades at a price of $10. The firm expects to pay a dividend of $1.00 at the end of the year.
• The firm has outstanding debt with a face value of $50 million. These are all 20- year bonds with a 6% coupon rate (paid semi-annually) and they are selling at a price of $802.07 per $1,000 bond.
• The firms tax rate is 30%.

Answer format: e.g. XX.X% = XX.X, 12.3% = 12.3 (no % sign, only 1 decimal place)

What is the firms pre-tax cost of debt?

Answer

What proportion of the firms capital structure is comprised of debt?

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What is the firms cost of equity using the Dividend Discount Model?

Answer

What is the firms WACC?

(Note: Please assume 15.0% for the cost of equity, 8.0% for the cost of debt, $40 Million for the market value of debt & $100 Million for the market value of equity)