If Microsoft's common stock is currently trading at $52.50 per share, and the company is expected to pay a dividend of $2.50 at the end of the year (D1 = $2.50) with a growth rate of 5.50% per year, what is the company's weighted average cost of capital (WACC) if it only uses retained earnings for its equity financing? Assuming the target capital structure of the company is 45% debt and 55% common equity, and the before-tax cost of debt is 7.50% with a tax rate of 40%, we can calculate the WACC using the cost of debt and cost of equity.

If Microsoft's common stock is currently trading at $52.50 per share, and the company is expected to pay a dividend of $2.50 at the end of the year (D1 = $2.50) with a growth rate of 5.50% per year, what is the company's weighted average cost of capital (WACC) if it only uses retained earnings for its equity financing? Assuming the target capital structure of the company is 45% debt and 55% common equity, and the before-tax cost of debt is 7.50% with a tax rate of 40%, we can calculate the WACC using the cost of debt and cost of equity.

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

Section: Chapter Questions

Problem 1PS

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Similar questions

Assume Gillette Corporation will pay an annual dividend of $0.68 one year from now. Analysts expect this dividend to grow at 12.8% per year thereafter until the 6th year. Thereafter, growth will level off at 1.9% per year. According to the dividend-discount model, what is the value of a share of Gillette stock if the firm's equity cost of capital is 8.9%? The value of Gillette's stock is $5.2 (Round to the nearest cent.)
Summit Systems will pay a dividend of $1.48 this year. If you expect Summit's dividend to grow by 5.8% per year, what is its price per share if the firm's equity cost of capital is 11.3%? The price per share is $ (Round to the nearest cent.)
CX Enterprises has the following expected dividends: $1.06 in one year, $1.24 in two years, and $1.29 in three years. After that, its dividends are expected to grow at 4.5% per year forever (so that year 4's dividend will be 4.5% more than $1.29 and so on). If CX's equity cost of capital is 12.1%, what is the current price of its stock? The price of the stock will be $ (Round to the nearest cent.)
Assume that the current stock price of a company is $40 per share. The company declares a cash dividend of $5 for the next year which is expected to grow by 2% per year forever. If the company is 55% debt financed with a pre-tax cost of debt of 12%, its weighted average cost of capital (WACC) for a 30% tax rate is closest to:
Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd = 8%, and its common stock currently pays a $4.00 dividend per share (D0 = $4.00). The stock's price is currently $29.50, its dividend is expected to grow at a constant rate of 8% per year, its tax rate is 35%, and its WACC is 12.75%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places.
Krell Industries has a share price of $21.35 today. If Krell is expected to pay a dividend of $ 0.61 this year, and its stock price is expected to grow to $ 23.08 at the end of the year, what is Krell's equity cost of capital? 16.3% 9.6% O 11.0% O 12.0%
Assume Gillette Corporation will pay an annual dividend of $0.61 one year from now. Analysts expect this dividend to grow at 12.1% per year thereafter until the 4th year. Thereafter, growth will level off at 2.4% per year. According to the dividend-discount model, what is the value of a share of Gillette stock if the firm's equity cost of capital is 8.5%? round to the nearest cent
An all-equity-financed firm plans to grow at an annual rate of at least 24%. Its return on equity is 45%. What is the maximum possible dividend payout rate the firm can maintain without resorting to additional equity issues? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
Assume Gillette Corporation will pay an annual dividend of $0.66 one year from now. Analysts expect this dividend to grow at 11.7% per year thereafter until the 4th year. Thereafter, growth will level off at 1.9% per year. According to the dividend-discount model, what is the value of a share of Gillette stock if the firm's equity cost of capital is 8.7%? The value of Gillette's stock is $ (Round to the nearest cent.)
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 $3.25 dividend per share (D0 = $3.25). The stock's price is currently $25.50, its dividend is expected to grow at a constant rate of 5% per year, its tax rate is 25%, and its WACC is 15.85%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places. %
NIKE Corporation will pay an annual dividend of $0.65 one year from now. It expects this dividend to grow at 12% per year thereafter until the fifth year. Thereafter, growth will level off at 2% per year. What is the value of a share of Gillette stock if the firm's equity cost of capital is 8% ?
Summit Systems will pay a dividend of $1.67 this year. If you expect Summit's dividend to grow by 5.9% per year, what is its price per share if the firm's equity cost of capital is 11.7%? The price per share is $ (Round to the nearest cent.)

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