Miller Manufacturing has a capital structure of 50% common stock, 5% preferred stock, and 45% debt....
Miller Manufacturing has a capital structure of 50% common stock, 5% preferred stock, and 45% debt. It just issued a dividend of $1.22 per share on its common stock. Dividends are expected to grow at a constant rate of 5%. Current common stock price is $45. Cost of preferred stock is 7.5% and before tax cost of debt is 7.5%. Tax rate for this firm is 21%. What is the WACC for this firm?
Homework Answers
cost of common stock = Dividend next year/price + growth rate
= 1.22*1.05/45 + 5%
= 0.07846666666
WACC = weight of debt * after tax cost of debt + weight of equity * cost of equity + weight of preferred stock * cost of preferred stock
= 0.45 * 7.5% * (1-0.21) + 0.5 * 0.07846666666 + 0.05 * 7.5%
= 6.97%
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Miller Manufacturing has a capital structure of 50% common stock, 5% preferred stock, and 45% debt....
2. Miller Manufacturing has a capital structure of 50% common stock, 5% preferred stock, and 45%...
2. Miller Manufacturing has a capital structure of 50% common stock, 5% preferred stock, and 45% debt. It just issued a dividend of $1.22 per share on its common stock. Dividends are expected to grow at a constant rate of 5%. Current common stock price is $45. Cost of preferred stock is 7.5% and before tax cost of debt is 7.5%. Tax rate for this firm is 21%. What is the WACC for this firm?
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