Dobson Dairies has a capital structure which consists of 60 percent long-term debt and 40 percent common stock.
January 13th, 2018
Dobson Dairies has a capital structure which consists of 60 percent long-term debt and 40 percent common stock. The company’s CFO has obtained the following information:• The before-tax yield to maturity on the company’s bonds is 9 percent.• The company’s common stock is expected to pay a $3.00 dividend at year end (D1 = $3.00), and the dividend is expected to grow at a constant rate of 7 percent a year. The common stock currently sells for $60 a share.• Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget.• The company’s tax rate is 40 percent.What is the company’s weighted average cost of capital (WACC)?