1. A stock has just paid $4 of dividend. The dividend is expected to grow at a constant rate of 12% a year, and the common stock currently sells for $70. The before-tax cost od debt is 10%, and the tax rate is 20%. The target capital structure of 37% debt and 63% common equity. What is the companys WACC if all equity is from retained earnings? A.) 14.55% B.) 13.68% C.) 15.86% D.) 15.13% E.) 13.53%
2. Bristol Myers Scuibb's cost of retained earnings is 14%, cost of preffered stock is 41% and its cost of debt is 7%. The optimal capital structure is 50% common stock, 15% preffered stock and 35% of debt. The firm will not be issuing any new stock and the marginal tax rate is 30%. What is the WACC? A.) 15.60 B.)15.61 C.)13.89 D.)14.87 E.)13.83