Caspian Sea Drinks' is financed with 66.00% equity and the remainder in debt. They have 11.00-year, semi-annual pay, 5.72% coupon bonds which sell for 97.60% of par. Their stock currently has a market value of $25.43 and Mr. Bensen believes the market estimates that dividends will grow at 3.59% forever. Next year’s dividend is projected to be $2.49
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Caspian Sea Drinks' is financed with 66.00% equity and the remainder in debt. They have 11.00-year, semi-annual pay, 5.72% coupon bonds which sell for 97.60% of par. Their stock currently has a market value of $25.43 and Mr. Bensen believes the market estimates that dividends will grow at 3.59% forever. Next year’s dividend is projected to be $2.49. Assuming a marginal tax rate of 35.00%, what is their WACC (weighted average cost of capital)?
Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))
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