Brady Inc. has a targeted capital structure of 40% debt, 10% preferred stock, and 50% common stock. The marginal tax rate is 35%. Use the data below to calculate the company’s WACC. Ignore flotation costs.
-The S&P 500 is expected to be up 12% over the next year.
-Brady’s preferred stock that is being traded in the marketplace pays an annual dividend of $8.00.
-Brady’s common stock sells for $25.00 per share. The expected dividend on the common stock next year is $2.00 per share.
-Brady’s bonds sell at a discount. The ten year bonds are priced at 97% of par ($1000 par value).They are annual bonds with a 7% coupon rate.
-Brady’s preferred stock sells for $75 per share. Treasury bonds are priced to yield 4%.
-Management feels its investors expect a 6% growth rate for the stock. The beta of the stock is 1.2.