A firm maintains a debt to equity ratio of 0

Finance Aug 09, 2020

A firm maintains a debt to equity ratio of 0.49 and has a tax rate of 31%. The company does not issue preferred stock but has a pre tax cost of debt of 7.57%. There are 20000 shares of the company's stock outstanding with a beta of 0.9 and market price of $30.30. Yesterday, the company issued an annual dividend in the amount of $1.30 per share. Dividends are expected to grow at 3.54% indefinitely. What is the company's WACC?

a. 6.72%

b. 6.90%

c. 7.25%

d. 7.43%

e. 7.07%

Expert Solution

Correct option is e). 7.07%

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