Using the rate of return on the stock as the cost of equity

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XYZ Inc has a capital structure that consists of 40% debt and 60% common stock. Dividends are growing at a constant rate of 5% and the current dividend is $2.00. The stock is currently selling for $21.88. The before tax cost of debt is 14% and the firm's marginal tax rate is 40%. a. What is the rate of return on the stock? b. Using the rate of return on the stock as the cost of equity, what is the weighted average cost of capital (WACC)?

Reference no: EM13921377

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