Dobson Dairies has a capital structure of 60 percent long-term debt and 40 percent common stock. The company's CFO has obtained the following information: The company's bonds have a pre-tax yield of 8 percent. The company's common stock is expected to pay a $3.00 dividend (D1 = $3.00) at the end of the year and the dividend is expected to grow at a steady 7 percent per year. Common stock is currently selling at $60 per share. Suppose the firm can use retained earnings to finance the equity portion of its capital budget. The company's tax rate is 40 percent.

What is the company's weighted average cost of capital (WACC)?

Answer rating: 100% (QA)

To calculate the weighted average cost of capital WACC we need to determine the cost of debt and the ... View the full answer