You have been asked to compute the WACC (Weighted Average Cost of Capital) for Kerry Inc.To assist in this process, you have been provided with the following information.The firm has $50 Million of 20-year bonds outstanding.The bonds carry a 5% coupon, paid semi-annually, and they are currently quoted at 95.00.The firm has five million shares outstanding.The shares are currently trading at $20, they are expected to pay a dividend of $3.00 at the end of the year and the dividend is expected to grow at 3% per year.You also note that the current yield on T Bills is 2%, the firm's Beta is 2 and the market risk premium is 8%.The firm's tax rate is 20%.

a) What is the cost of equity using the dividend discount model?

b) What is the proportion ofdebtin the capital structure?

c) What is the proportion ofequityin the capital structure?

d) What is the firm's WACC, using the cost of equity as computed using the dividend discount model?

Answer rating: 100% (QA)

Assumptions The scenario you provided is a realistic representation of a companys financial situation All necessary information is available The calcu... View the full answer