Homework answers / question archive /

Accounting

Share With

.The Woodsburg Co. maintains a debt-equity ratio of .60 and has a tax rate of 35 percent. The firm does not issue preferred stock. The firm's pre-tax cost of debt is 8.75 percent. Woodsburg Co. has 20,000 shares of stock outstanding with a beta of .9 and a market price of $30. The current market risk premium is 7 percent and the current risk-free rate is 3 percent. Last month, Woodsburg Co. issued an annual dividend in the amount of $1.25 per share. Dividends are expected to grow at 2 percent indefinitely. Using an average expected cost of equity, what is Woodsburg's weighted average cost of capital? 
A. 6.0 percent B. 7.0 percent C. 7.9 percent D. 8.1 percent E. 9.5 percent