Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D₁- $2.50), the dividend is expected to grow at a constant rate of 5.50 % a year, and the common stock currently sells for $80.00 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? O 7.31% O 6.84% O 6.70% O 6.77% O 5.75%
Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D₁- $2.50), the dividend is expected to grow at a constant rate of 5.50 % a year, and the common stock currently sells for $80.00 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? O 7.31% O 6.84% O 6.70% O 6.77% O 5.75%
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 15P
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![Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D₁-$2.50), the dividend is
expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for
$80.00 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?
O 7.31%
O 6.84%
O 6.70%
6.77%
O 5.75%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2696c8a1-00f8-4a54-a9e1-9a82a803c90b%2F8321639c-647b-47ab-8431-5e065e487926%2F6kx1ky_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D₁-$2.50), the dividend is
expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for
$80.00 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?
O 7.31%
O 6.84%
O 6.70%
6.77%
O 5.75%
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