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timama [110]
3 years ago
9

Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd = 11%, and its common sto

ck currently pays a $2.00 dividend per share (D0 = $2.00). The stock's price is currently $23.00, its dividend is expected to grow at a constant rate of 7% per year, its tax rate is 25%, and its WACC is 14.45%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places.
Business
1 answer:
ANTONII [103]3 years ago
5 0

Answer:

16.30%

Explanation:

Calculation for what the percentage of the company's capital structure consists of debt

Using this formula

rs=D1/P0+g

First step is to find the D1 using this formula

D1=(1+Dividend expected grow constant rate) *+Dividend per share

Let plug in the formula

D1=(1+0.07)*$2.00

D1=1.07*$2.00

D1=$2.14

Now let find the percentage of the company's capital structure Using this formula

rs=D1/P0+g

Let plug in the formula

rs=$2.14/$23.00+0.07

rs=0.09304947+0.07

rs=0.1630*100

rs=16.30%

Therefore the percentage of the company's capital structure consists of debt will be 16.30%

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