Hertha BSC Company has a capital structure, which consists of 60 percent long-term debt and 40 percent common stock. The company’s CFO has obtained the following information:
The company’s bonds are selling for $1000 per bond with coupon rate of 8% and maturity value of $1,000.The bond will be matured in 20 years.
The company’s common stock is expected to pay a $3.00 dividend at year end, and the dividend is expected to grow at a constant rate of 7 percent 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 percent.
What is the company’s weighted average cost of capital (WACC)?