If Microsoft's common stock is currently trading at $52.50 per share, and the company is expected to pay a dividend of $2.50 at the end of the year (D1 = $2.50) with a growth rate of 5.50% per year, what is the company's weighted average cost of capital (WACC) if it only uses retained earnings for its equity financing? Assuming the target capital structure of the company is 45% debt and 55% common equity, and the before-tax cost of debt is 7.50% with a tax rate of 40%, we can calculate the WACC using the cost of debt and cost of equity.

If Microsoft's common stock is currently trading at $52.50 per share, and the company is expected to pay a dividend of $2.50 at the end of the year (D1 = $2.50) with a growth rate of 5.50% per year, what is the company's weighted average cost of capital (WACC) if it only uses retained earnings for its equity financing? Assuming the target capital structure of the company is 45% debt and 55% common equity, and the before-tax cost of debt is 7.50% with a tax rate of 40%, we can calculate the WACC using the cost of debt and cost of equity.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 5MC

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