Problem:
Time Warner shares have a market capitalization of $55 billion. The company just paid a dividend of $0.35 per share and each share trades for $35. The growth rate in dividends is expected to be 6.5% per year. Also, Time Warner has $20 billion of debt that trades with a yield to maturity of 7%.
If the firm's tax rate is 30%, compute the WACC?
A) 6.81%
B) 6.85%
C) 7.45%
D) 7.93%
E) 8.19%