Uses the dcf approach to determine the cost of equity

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Flaherty Electric has a capital structure that consists of 70 percent equity and 30 percent debt. The company's long-term bonds have a before-tax yield to maturity of 8.4 percent. The company uses the DCF approach to determine the cost of equity. Flaherty's common stock currently trades at $45 per share. The year-end dividend (D1) is expected to be $2.50 per share, and the dividend is expected to grow forever at a constant rate of 7 percent a year. The company estimates that it will have enough retained earnings to fund this year's projects. The flotation cost on new common stock issued is 10 percent, and the company's tax rate is 40 percent. What is the company's weighted average cost of capital, WACC?

Reference no: EM131352514

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