You are about to start to consider a batch ofnew capital budgeting projects. Before you begin,you need to estimate your company’s Weighted-Average-Cost-of-Capital (WACC). The firm operates in the 35% marginaltax bracket. There are foursets of liabilityholders on the balancesheet. Calculate the WACC including all four classes of liabilities.
A. There are 5,760,000 shares ofcommon stockoutstanding. These are trading at $52.36 per share. You have decided to use the Gordon Growth Model to estimate the return required by your firm’s shareholders. In the most recent annual report the earnings per share (EPS) were $3.85. You feel that it is reas onable to assume that earnings will grow at about 1.30% into the foreseeable future.