Calculation of cost of equity | |||||||||||
We can calculate the cost of common equity using dividend capitalization model stated as under, | |||||||||||
Cost of common equity = [Dividend per share for next year / Current Market value of stock] * Growth rate of dividends | |||||||||||
Dividend per share for next year = last dividend * (1+growth rate) = $2.25 * (1+0.08) = 2.43 | |||||||||||
Cost of common equity = [$2.43 / $22] * 0.08 = 0.190455 | |||||||||||
Cost of common equity = 19.05% | |||||||||||
Calculation of WACC i.e.weighted average cost of capital | |||||||||||
WACC = [After tax cost of debt * Weight of debt in capital structure] + [Cost of equity * Weight of equity in capital structure] | |||||||||||
After tax cost of debt = Before tax cost of debt * (1 - Tax rate) = 9% * (1-0.40) = 5.40% | |||||||||||
WACC = [0.054 * 30%] + [0.1905 * 70%] = 0.1495 | |||||||||||
WACC = 14.95% | |||||||||||
Check My Work 10-2: Basic Definitions 10-5: The Cost of Retained Earnings, rs Cost of Common...
Problem 10-8 Cost of Common Equity and WACC Palencia Paints Corporation has a target capital structure of 25% debt and 75% common equity, with no preferred stock. Its before-tax cost of debt is 10% and its marginal tax rate is 40%. The current stock price is Po = $22.00. The last dividend was Do = $2.25, and it is expected to grow at a 7% constant rate. What is its cost of common equity and its WACC? Round your answers...
6. Problem 10.08 (Cost of Common Equity and WACC) eBook Palencia Paints Corporation has a target capital structure of 25% debt and 75% common equity, with no preferred stock. Its before-tax cost of debt is 10%, and its marginal tax rate is 40%. The current stock price is Po = $35.00. The last dividend was Do = $2.25, and it is expected to grow at a 6% constant rate. What is its cost of common equity and its WACC? Do...
Problem 10-8 Cost of Common Equity and WACC Palencia Paints Corporation has a target capital structure of 25% debt and 75% common equity, with no preferred stock. Its before-tax cost of debt is 10% and its marginal tax rate is 40%. The current stock price is Po = $27.50. The last dividend was Do = $2.25, and it is expected to grow at a 6% constant rate. What is its cost of common equity and its WACC? Round your answers...
COST OF COMMON EQUITY AND WACC Palencia Paints Corporation has a target capital structure of 30% debt and 70% common equity, with no preferred stock. Its before-tax cost of debt is 13% and its marginal tax rate is 40%. The current stock price is Po-$31.50. The last dividend was D0 = $2.25, and it is expected to grow at a 4% constant rate. What is its cost of common equity and its WACC? Round your answers to two decimal places....
Palencia Paints Corporation has a target capital structure of 30% debt and 70% common equity, with no preferred stock. Its before-tax cost of debt is 9%, and its marginal tax rate is 25%. The current stock price is Po = $22.00. The last dividend was Do = $2.50, and it is expected to grow at a 4% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal...
Palencia Paints Corporation has a target capital structure of 30% debt and 70% common equity, with no preferred stock. Its before-tax cost of debt is 12%, and its marginal tax rate is 25%. The current stock price is Po = $22.00. The last dividend was Do = $2.75, and it is expected to grow at a 6% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal...
Problem 10-8 Cost of Common Equity and WACC Palencia Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 11% and its marginal tax rate is 40%. The current stock price is Po = $20.00. The last dividend was Do = $3.00, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC? Round your answers...
Problem 10.11 4 Question 7 of 8 D Check My Work 10-2: Basic Definitions 10-5: The Cost of Retained Earnings, rs WACC and Percentage of Debt Financing Hook Industries' capital structure consists solely of debt and common equity. It can issue debt at rd 1190, and its common stock currently pays a $3.50 dividend per share (Do $3.50). The stock's price is currently $21.75, its I dividend is expected to grow at a constant rate of 7% per year, its...
COST OF COMMON EQUITY AND WACC Palencia Paints Corporation has a target capital structure of 30% debt and 70% common equity, with no preferred stock. Its before-tax cost of debt is 9%, and its marginal tax rate is 40%. The current stock price is P0 = $27.50. The last dividend was D0 = $2.00, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC? Round your answers to two...
Cost of Common Equity and WACC Palencia Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 10% and its marginal tax rate is 40%. The current stock price is P0 = $23.50. The last dividend was D0 = $3.75, and it is expected to grow at a 7% constant rate. What is its cost of common equity and its WACC? Round your answers to two...