Computing wacc using before-tax yield to maturity

Reference no: EM1310255

1) Dobson Dairies has capital structure that consists of 60% long-term debt and 40% common stock. Company’s CFO has got the following information:

i) Before-tax yield to maturity on company’s bonds is 9%.
ii) Company’s common stock is expected to pay a= $3.00 dividend at year end (D1 = $3.00), and dividend is expected to rise at a constant rate of 7% a year. Common stock presently sells for $60 a share.
iii) suppose the firm will be able to utilize retained earnings to fund equity portion of its capital budget.
iv) Company’s tax rate is 40%.

What is the company’s weighted average cost of capital (WACC)?

Reference no: EM1310255

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