Question

Langniment com 41.75% Save Submit Assignment for Grading Question 7 of 8 Check My Work (1 remaining) Problem 10-11 WACC and Percentage of Debt Financing Hook Industries' capital structure consists solely of debt and common equity. It can issue debt atra -11%, and its common stock currently pays a $1.50 dividend per share (Do - $1.50). The stock's price is currently $32.00, its dividend is expected to grow at a constant rate of 9% per year, its tax rate is 35%, and its WACC IS 12.75%. What percentage of the company's capital structure consists of debt Round your answer to two decimal places. 50 PM o e ê

Answer 1

Cost of equity ( r)	D1÷P0+g
Here,
Net stock price (P0)	$         32.00
Expected dividend (D1)	$            1.64	=1.5*(1+9%)
Growth rate (g)	9%
Cost of equity ( r)	14.11%
	1.64÷32+9%

WACC WdxRdx(1-t)+Wex Ke+WpxKp W is weights of respective portfolios R is return on respective portfolios Wd+We+Wp1 12.75% = Wdx11%x(1-35%)+(1-Wd)x14.11% 12.75% = Wdx7.15%+14.11%-14.11%xWd 6.96%xWd 1.36% Weight of debt, Wd 19.54%

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