Sarensen Systems Inc. is expected to pay a dividend of $2.50 at year end (D), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $ 37.50 a share. The before - tax cost of debt is 7.50 %, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity.What is the company's WACC if all the equity used is from retained earnings?

Sarensen Systems Inc. is expected to pay a dividend of $2.50 at year end (D), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $ 37.50 a share. The before - tax cost of debt is 7.50 %, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity.What is the company's WACC if all the equity used is from retained earnings?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 15P

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