Question: A firm just paid a $2.50 dividend. Its dividends are expected to grow at a constant rate of 5.50% per year, and the common stock currently sells for $52.50 a share. The firm's 4% coupon bonds are currently selling for $918 with 5 years remaining until maturity.
What is the annualized cost of debt assuming the bonds pay interest semiannually?
What is the cost of equity?
The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC assuming the tax rate is 40%?