6. Using the WACC equation Aa Aa Schoen & Co. has a target capital structure of

Question

6. Using the WACC equation Aa Aa Schoen & Co. has a target capital structure of 60% debt and 40% common equity, with no preferred stock. The firm's cost of common equity is 12.5% and Its WACC Is 8.612%. If the firm's tax rate is 30%, what is the before-tax yield on Schoen's long-term debt? 9.8% C) 9.2% 10.0% C) 8.8% S) 8.6% Schoen can finance Its capital budget with retained earnings throughout the foreseeable future, and Its stock price is expected to grow at a constant rate. Schoen's expected long-run sustainable return on equity (ROE) is 15%, and the firm expects to maintain its dividend payout ratio of 40%. If Schoen uses the DCF approach to calculate its cost of retained earnings, what is the expected dividend yield on Schoen's stock? 2.0% C) 3.5% C) 5.0% 2.9% 7.7%

Explanation / Answer

1.9.2%

2.7.7%

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