Dobson Dairies has a capital structure consisting of 60% debt and 40% common stock. The company's CFO has obtained the following information:
The before-tax YTM on the company's bonds is 8%.
The company's common stock is expected to pay a $3.00 dividend at year end (D1 = $3.00), and the dividend is expected to grow at a constant rate of 7% a year. The common stock currently sells for $60 a share.
Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget..
The company's tax rate is 40%.
What is the company's WACC?
a. 12.00%
b. 8.03%
c. 9.34%
d. 8.00%
e. 7.68%