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Company weighted average cost of capital

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Reference no: EM131954611

A corp has a targeted capital structure of 40% long term debt and 60% common stock.

The debt is yielding 6% and the corporate tax rate is 35%.

The common stock is trading at $50 per share and next year's dividend is $2.50 per share that is growing by 4% per year.

What is the company's weighted average cost of capital. Use the dividend discount model. Show calculations.

The company's CEO has stated if the company increases the amount of long term debt so the capital structure will be 60% debt and 40% equity, this will lower its WACC. Explain and defend why you agree or disagree. Report how would you advise the CEO.

Reference no: EM131954611

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