A financial analyst at Buckco Ltd. wants to compute the company's weighted average cost of capital (WACC) using the dividend discount model. The analyst has gathered the following data:

- Before-tax cost of new debt 8 percent

- Tax rate 40 percent

- Target debt-to-equity ratio 0.8033

- Stock price $30

- Next year's dividend $1.50

- Estimated growth rate 7 percent

Buckco's WACC is closest to:

a. 8 percent.

b. 9 percent.

c. 12 percent.

Answer rating: 100% (QA)

To calculate the weighted average cost of capital WACC using the dividend d... View the full answer