WACC) Deals inc has a capital structure consisting of 41% common stock an 59% de

Question

WACC) Deals inc has a capital structure consisting of 41% common stock an 59% debt.A debt issue of 1,000 par value,6.1% bonds that mature in 15 years and pay annual interest rate will sell for $973.Common stock of the firm is currently selling for $29.12 per share and the firm expects to pay a $2.25 dividend next year. Dividendends have grown at the rate of 4.7% 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

Bond: 973= 61PVIFA(r,15)+1000PVIF(r,15) r= 6.39% Common stock 29.12= 2.25x1.047/(r-.047) r= 12.79% WACC= .59x.7x6.39)+(.41x12.79)= 7.883%

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