w4/q2(redo) WACC) Deals inc has a capital structure consisting of 44% common sto

Question

w4/q2(redo) WACC) Deals inc has a capital structure consisting of 44% common stock an 56% debt.A debt issue of 1,000 par value,5.5% bonds that mature in 15 years and pay annual interest rate will sell for $979.Common stock of the firm is currently selling for $29.97 per share and the firm expects to pay a $2.17 dividend next year. Dividends have grown at the rate of 4.8% per year and are expected to continue to do so for the foreseeable future.what is deal inc cost of capital where the firms tax rate is 30%? Deals inc cost of capital is ___%(round to three decimal places)

Explanation / Answer

cost of debt 979= 55PVIFA(Kd,15)+1000PVIF(Kd,15) Kd= 5.71% After tax Kd=5.71(1-.3)= 3.997% Cost of equity 2.17/(Ke-.048)= 29.97 Ke=12.04% WACC= .56x3.997+(.44x12.04)=7.54% for increase cost of capital, we must know the old cost of capital, so that we can campare..

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