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,6.3% bonds that mature in 15 years and pay annual interest rate will sell for $974.Common stock of the firm is currently selling for $30.04 per share and the firm expects to pay a $2.23 dividend next year. Dividends have grown at the rate of 5.1% 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 974= 62PVIFA(Kd,15)+1000PVIF(Kd,15) Kd= 6.48% After tax Kd=6.48(1-.3)= 4.536% Cost of equity 2.23/(Ke-.051)= 30.04 Ke=12.52% WACC= .56x4.536+(.44x12.52)=8.049% or 8.05%

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