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Management of the SoSadItIsOver Company needs to determine its-(Answered)

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Management of the SoSadItIsOver Company needs to determine its cost of capital in order to evaluate some large capital purchases. The company's bonds have a yield to maturity of 6%, last dividend paid on common stock was $1.50 per share, current stock price is $30/share, and constant growth of 5% is expected on dividends and earnings. The company's capital structure is 30% debt, 70% equity. There is no preferred stock and the marginal tax rate is 35%.???SHOW ALL WORK FOR FULL CREDIT.

a) 4 pts. What is the after-tax cost of debt?

b) 4 pts. What is the cost of equity?

c) 6 pts. What is the company's cost of capital (WACC)?


a)

 

After-tax cost of debt = YTM*(1-tax rate)

 

After-tax cost of debt = 6%*(1-35%)

 

After-tax cost of debt = 3.90%

 


 

b)

 

Expected Dividend = D0*(1+g)

 

Expected Dividend = 1.50*(1+5%)

 

Expected Dividend =...

 

Paper#9209763 | Written in 27-Jul-2016

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