Big Pharm corporation has a target capital structure of 35% debt and 65% common equity, with no preferred stock. Its before-tax cost of debt is 8%, and its marginal tax rate is 40%. The current stock price is. The last dividend was DO = $2,25, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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stock price is $20

Big Pharm corporation has a target capital structure of 35% debt and 65% common equity, with no
preferred stock. Its before-tax
cost of debt is 8%, and its marginal tax rate is 40%. The current stock price is. The last dividend
was DO = $2,25, and it is expected
to grow at a 5% constant rate. What is its cost of common equity and its WACC?
Transcribed Image Text:Big Pharm corporation has a target capital structure of 35% debt and 65% common equity, with no preferred stock. Its before-tax cost of debt is 8%, and its marginal tax rate is 40%. The current stock price is. The last dividend was DO = $2,25, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC?
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