Retained earnings to fund equity portion of capital budget

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Hatch? Corporation’s target capital structure is 40 percent? debt, 50 percent common? stock, and 10 percent preferred stock. Information regarding the? company’s cost of capital can be summarized as? follows: ?• The company may borrow money from the bank at? 8%. ?• The cost of the? company’s preferred stock is? 10%. ?• The? company’s common stock sells for? $20 a? share, and is expected to pay a dividend of? $2 a share at the end of the year? (i.e., D1? = $2.00). The dividend is expected to grow at a constant rate of 6 percent a year. ?• The firm will be able to use retained earnings to fund the equity portion of its capital budget. ?• The? company’s tax rate is 40 percent. What is the? company’s weighted average cost of capital? (WACC)? A. ?10.92% B. ? 9.25% C. ?11.30% D. ?10.03% E. ? 9.70%

Reference no: EM131188054

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