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Find the cost of capital for the company

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Reference no: EM133112031

As the first task in your finance internship, you have been asked to find the cost of capital (WACC) for a company. The company has two main sources of capital available. The marginal tax rate for the company is 26%.

Common stock: 250 000 shares outstanding. The book value per share is $20. However, the company was recently able to issue new stock with the price of $35. The company paid recently out $2.5 as dividends and expects dividends to grow by 4% annually within foreseen future. The risk free interest rate is 2.5%.

Debt: 5 000 discount bonds with 1 000 par value and 5 years to maturity. The bonds currently offer 4% yield to investors.

a) Find the cost of capital (WACC) for the company

b) Provide an explanation about what your result means?

Reference no: EM133112031

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