Question

Sorensen Systems Inc. is expected to pay a dividend of $2.50 at your end Coilth alvidend here is expected to grow at a co rate of 5.50% a lear and the common st Currently sells for $3750 a share. The Tax cost of debt is 7.50% and the tax ID 40... The target capital structure a Twists of 451 debt and SS comman what is the company's UACC it all the ea lih ven used is from retained eanings costant Stock ne before 1: Чchut a yar answer should be between 7.3led and 12.57, randed to 2 decimi places, with no special characters.

Answer 1

WACC is weighted Avg cost o sources in capital structure.

Ke = [D1 / P0 ] + g

= [ $ 2.50 / $ 37.50 ] + 0.055

= 0.0667 + 0.055

= 0.1217 i.e 12.17%

After Ta xCOst of Debt = Cost of Debt * ( 1- Tax Rate )

= 7.5% ( 1 - 0.4)

= 7.5% * 0.6

= 4.5%

WACC:

Source	Weight	Cost	Wtd Cost
Debt	45%	4.50%	0.0203
Equity	55%	12.17%	0.0669
WACC			0.0872

WACC is 8.72%

Pls comment, if any further asssitance is required.