Granite Works maintains a debt-equity ratio of 0.65 and has a tax rate of 32 per

Question

Granite Works maintains a debt-equity ratio of 0.65 and has a tax rate of 32 percent. The firm does not issue preferred stock. The pre-tax cost of debt is 9.8 percent. There are 25,000 shares of stock outstanding with a beta of 1.2 and a market price of $19 a share. The current market risk premium is 8.5 percent and the current risk-free rate is 3.6 percent. This year, the firm paid an annual dividend of $1.10 a share and expects to increase that amount by 2 percent each year. Using an average expected cost of equity, what is the weighted average cost of capital? Answer a. 8.44 percent b. 8.96 percent c. 9.13 percent d. 9.20 percent e. 8.78 percent

Explanation / Answer

e. 8.78 percent

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