Sarensen Systems Inc. is expected to pay a dividend of $2.50 at year end (D), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $ 37.50 a share. The before - tax cost of debt is 7.50 %, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity.What is the company's WACC if all the equity used is from retained earnings?

Sarensen Systems Inc. is expected to pay a dividend of $2.50 at year end (D), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $ 37.50 a share. The before - tax cost of debt is 7.50 %, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity.What is the company's WACC if all the equity used is from retained earnings?

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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Question

Sarensen Systems Inc. is expected to pay a dividend of $2.50 at year end (D), the dividend is
expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $
37.50 a share. The before -tax cost of debt is 7.50 %, and the tax rate is 40% . The target capital
structure consists of 45% debt and 55% common equity.What is the company's WACC if all the
equity used is from retained earnings?

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