The director of capital budgeting for XYZ, Inc. manufacturers of playground equipment, is considering a plan to expand production facilities in order to meet an increase in demand. He estimates that this expansion will produce a rate of return of 26%. The firm’s target capital structure calls for a debt ratio of 39%. XYZ currently has a bond issue outstanding that will mature in 10 years and has a 12% coupon rate paid semi-annually. The bonds are currently selling for $1,305.94. The firm has maintained a constant growth rate of 6%. XYZ’s next dividend will be $3.35 and its current stock price is $48.00. The tax rate is 21%. What is the firm's Weighted Average Cost of Capital (WACC)?

Answer rating: 100% (QA)

Calculating XYZs Weighted Average Cost of Capital WACC 1 Cost of Equity Ke We can use the Gordon Gro... View the full answer