1. Watta Company has only common equity and bonds. You are asked to estimate Watta Company's WACC and you have the following information: Watta's next stock dividend is expected to be $1 per share. This dividend will grow at 6% indefinitely. The stock currently sells for $50 per share. Watta has a target debt-equity ratio of 2/3 and it can sell 10-year coupon bonds with a coupon rate of 8% at the par value. The average going market interest rate for all other companies' debts in the industry is 12%. If the tax rate is 21%, what is the estimated WACC? (The company does not have any differed stocks).

Answer rating: 100% (QA)

To estimate Watta Companys weighted average cost of capital WACC we need to calculate the cost of eq... View the full answer