Reference no: EM13730382
Ajax Warehouse Ltd. has asked you to calculate their weighted average cost of capital (WACC) based on the following data:
Common shares: 100,000 shares currently outstanding with a market price of $32.50 per share. A dividend of $2.00 per share was paid last year, and dividends are expected to grow at a rate of 4% for the foreseeable future.
Preferred shares: Ajax has $2,625,000 in 7.5% preferred shares outstanding. It is expected that any new preferred shares would be priced to yield a return of 10%.
Bonds: There is currently $1,500,000 in 5.0% bonds outstanding, maturing in 10 years. Interest is paid semi-annually. Similar bonds are trading to yield 6.0%.
Ajax has an effective corporate tax rate of 30%; and a target capital structure of 40% common equity, 10% preferred and the balance in debt.
Based on this information what is the WACC for Ajax? (Note: use four (4) decimal places for all calculations)
A. 0716
B. 0840
C. 0726
D. 0816
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