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What is the company weighted average cost of capital or wacc

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Sondob Dairies has a capital structure that consists of 60 percent long-term debt and 40 percent ordinary shares. The company's CFO has obtained the following information:

  • The before-tax yield to maturity on the company's bonds is 8 percent.
  • The company's ordinary share is expected to pay a P3.00 dividend at year-end (D1 = P3.00), and the dividend is expected to grow at a constant rate of 7 percent a year. The ordinary shares are currently sells for P60 a share.
  • Assume 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.

Problem 1: What is the company's weighted average cost of capital (WACC)?

Reference no: EM132759364

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