You have been asked to compute the WACC (Weighted Average Cost of Capital). To assist in this process, you have been provided with the following information. The firm has $37 Million of 15-year bonds outstanding. The bonds carry a 3% coupon, paid semi-annually, and they currently quoted at 97.00. The firm has six million shares outstanding. The shares are currently trading at $25, they are expected to pay a dividend of $3.00 at the end of the year and the dividend is expected to grow at 4% per year. You also note that the current yield on T Bills is 1.5%, the firms Beta is 2 and the market risk premium is 5%. The firms tax rate is 20%.

What is the cost of equity using the dividend discount model?

Multiple Choice

• 15%

• 18%

• 16%

• 11%