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lubasha [3.4K]
3 years ago
12

Granite works maintains a debt-equity ratio of .65 and has a tax rate of 21 percent. the pretax cost of debt is 9.8 percent. the

re are 25,000 shares of stock outstanding with a beta of 1.2 and a market price of $25 a share. the current market risk premium is 8.5 percent and the current risk-free rate is 3.6 percent. this year, the firm paid an annual dividend of $1.90 a share and expects to increase that amount by 3 percent each year. using an average expected cost of equity, what is the weighted average cost of capital?
Business
1 answer:
guajiro [1.7K]3 years ago
7 0
<span>9.20 percent

Re= 0.036 +1.2(0.085) = 0.138
Re= [($1.10 x 1.02)$19] +.02 = 0.0790526

ReAverage = (0.138 + 0.0790526)/2 = 0.108526

WACC = (1/1.65)(0.108526) + (0.65/1.65)(0.098)(1-0.32) = 9.20 percent</span>
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Answer:

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Operating income      $210,000            $230,000              ($20,000)

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