A financial analyst at Buckco Ltd. wants to compute the company's weighted average cost of capital (WACC)
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Question:
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.
Related Book For
Financial Management Theory and Practice
ISBN: 978-1305632295
15th edition
Authors: Eugene F. Brigham, Michael C. Ehrhardt
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