Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd = 12%, and its common stock currently pays a $3.00 dividend per share (D0 = $3.00). The stock's price is currently $23.25, its dividend is expected to grow at a constant rate of 7% per year, its tax rate is 25%, and its WACC is 12.65%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places. %

Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd = 12%, and its common stock currently pays a $3.00 dividend per share (D0 = $3.00). The stock's price is currently $23.25, its dividend is expected to grow at a constant rate of 7% per year, its tax rate is 25%, and its WACC is 12.65%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places. %

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter9: The Cost Of Capital

Section: Chapter Questions

Problem 7P

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Concept explainers

Cost of Capital

Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.

Capital Structure

Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.

Weighted Average Cost of Capital

The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.

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Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at r_d = 12%, and its common stock currently pays a $3.00 dividend per share (D₀ = $3.00). The stock's price is currently $23.25, its dividend is expected to grow at a constant rate of 7% per year, its tax rate is 25%, and its WACC is 12.65%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places.

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