Gold Diggers, Inc. has 800,000 shares of common stock, currently trading at $45/share. The common stock of Gold Diggers, Inc. is expected to generate a dividend of $3.00/share next year, and it has a Beta calculated at .95. It also has 10,000 shares of preferred stock, trading at $90/share. The preferred stock pays dividends of 11%. Finally, Gold Diggers, Inc. has 57,000 bonds currently trading at $1020/bond. The coupon rate is 6%, and the bonds will mature in 5 years.
Gold Diggers, Inc. expects its dividends to grow at a rate of 8%/year, and it is in a 34% tax bracket. It estimates that the risk free rate of return is 5.5% and the market rate of return is 12%.
Calculate the WACC for Gold Diggers, Inc. Be sure to show all your work. NOTE: When calculating the cost of equity, compute the cost using the CAPM method and the DCF (Dividend Constant Growth Method) and average the two.
Find Weight of equity,Weight of preferred stock capital, weight of debt, Cost of equity, cost of preferred stock, cost of debt, WACC.