Let Timco use a capital structure that is 30% debt and 70% equity, The firm can...
Let Timco use a capital structure that is 30% debt and 70% equity, The firm can borrow at 6%. The tax rate is 40%. Timco is planning on paying dividend of 2 to maintain our 5% growth. The current stock price is 16.13. Find the WACC.
Homework Answers
After-tax cost of debt=6*(1-tax rate)
=6(1-0.4)=3.6%
Cost of equity=(D1/Current price)+Growth rate
=(2/16.13)+0.05
=17.399256%(Approx).
WACC=Respective costs*Respective weight
=(3.6*0.3)+(0.7*17.399256)
which is equal to
=13.26%(Approx).
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