Problem 10-8 Cost of Common Equity and WACC Palencia Paints Corporation has a target capital structure...

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Problem 10-8 Cost of Common Equity and WACC Palencia Paints Corporation has a target capital structure of 40% debt and 60% co

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Answer 1

Answer #1

cost of common equity=(D1/Current price)+Growth rate

=[(3*1.05)/20]+0.05

=20.75%

Cost of debt aftertax=11*(1-tax rate)

=11*(1-0.4)=6.6%

WACC=Respective costs*Respective weight

=(20.75*0.6)+(0.4*6.6)

=15.09%

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Answer 2

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