Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock. Its before-tax cost of debt is 8%, and its marginal tax rate is 25%. The current stock price is P0 = $34.00. The last dividend was D0 = $2.50, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC?

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To find the cost of common equity Ke using the dividend discount model DDM and the weighted ... View the full answer