The company''s beta is 0.80, the risk free rate

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The company's beta is 0.80, the risk free rate is 3.0%, and the market rate of return is 11.5%. Last year's dividend was $2.35, the current stock price is $88.10, and dividends have been growing at a rate of 5.5% annually. The company pays a rate of 2.25% on its short term debt and 5.75% on its long term debt. The preferred stock dividend paid by the company each year is $1,85 million. The company's tax rate is 38%.

Answer the following questions about the Widget Company.

1. Calculate the debt to equity capital structure of the Widget Company.

2. a. What is the after tax cost of accounts payable?

b. What is the after tax cost of short term debt?

c. What is the after tax cost of long term debt?

d. What is the after tax cost of preferred stock?

3. a. Using the Capital Asset Pricing Model (CAPM) calculate the expected rate of return for the stock of The Widget Company.

b. Using the Dividend Growth Model calculate the rate of return for the stock of The Widget Company.

c. What is the rate of return that you would recommend be used for the Widget Company? Why?

4. Calculate the weighted average cost of capital for the company.

Reference no: EM13713599

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