WACC) Deals inc has a capital structure consisting of 43% common stock an 57% de

Question

WACC) Deals inc has a capital structure consisting of 43% common stock an 57% 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 $970.Common stock of the firm is currently selling for $30.29 per share and the firm expects to pay a $2.19 dividend next year. Dividends have grown at the rate of 4.6% 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: 970= 61PVIFA(r,15)+1000PVIF(r,15) r= 6.42% AFTER tax Rd= 6.42(1-.3)= 4.494% Common stock 30.29= 2.19/(Ke-.046)11.83% WACC= .43x11.83+(.57x4.494)= 7.648%

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