Dividend constant growth method

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Reference no: EM131180683

Eureka Gold Mining, Co. has 2,000,000 shares of common stock, currently trading at $50/share. The common stock of Eureka Gold Mining, Co. is expected to pay a dividend next year of $5.00/share, and it has a Beta calculated at 1.8. It also has 120,000 shares of preferred stock, trading at $125/share. The preferred stock pays dividends of 10%. Finally, Eureka Gold Mining, Co. has 50,000 bonds currently trading at $900/bond. The coupon rate is 8%, and the bonds will mature in 12 years.

Eureka Gold Mining, Co. expects its dividends to grow at a rate of 7%/year, and it is in a 40% tax bracket. It estimates that the risk free rate of return is 3% and the market rate of return is 12%.

Calculate the WACC for Eureka Gold Mining Co. Be sure to show all your work. NOTE: When calculating the cost of equity, compute the cost using the CAPM method and the DCF (Dividend Constant Growth Method)

Reference no: EM131180683

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