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Hilliard Corp. wants to calculate its weighted average cost of capital (WACC). The company’s CFO has collected the following information:  The company’s long-term bonds currently offer a yield to maturity of 8 percent.  The company’s stock price is P32 a share.  The company recently paid a dividend of P2 a share.  The dividend is expected to grow at a constant rate of 6 percent a year.  The company pays a 10 percent flotation cost whenever it issues new common stock.  The company’s target capital structure is 75 percent equity and 25 percent debt.  The company’s tax rate is 40 percent.  The firm will be able to use retained earnings to fund the equity portion of its capital budget.

Hilliard Corp. wants to calculate its weighted average cost of capital (WACC). The company’s CFO has collected the following information:  The company’s long-term bonds currently offer a yield to maturity of 8 percent.  The company’s stock price is P32 a share.  The company recently paid a dividend of P2 a share.  The dividend is expected to grow at a constant rate of 6 percent a year.  The company pays a 10 percent flotation cost whenever it issues new common stock.  The company’s target capital structure is 75 percent equity and 25 percent debt.  The company’s tax rate is 40 percent.  The firm will be able to use retained earnings to fund the equity portion of its capital budget.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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7. Hilliard Corp. wants to calculate its weighted average cost of capital (WACC). The company’s CFO has collected the following information:

 The company’s long-term bonds currently offer a yield to maturity of
8 percent.

  •  The company’s stock price is P32 a share.
  •  The company recently paid a dividend of P2 a share.
  •  The dividend is expected to grow at a constant rate of 6 percent a
    year.
  •  The company pays a 10 percent flotation cost whenever it issues
    new common stock.
  •  The company’s target capital structure is 75 percent equity and 25
    percent debt.
  •  The company’s tax rate is 40 percent.
  •  The firm will be able to use retained earnings to fund the equity
    portion of its capital budget.

 

What is the company’s WACC?

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