Reference no: EM132953623
Sweet Pie company, just paid $0.65 as a dividend, which is expected to grow at 4.0 per cent. Its most recent stock price is $72. Further, the company has a debt issue outstanding with 23 years to maturity that is quoted at 103 per cent of face value. The issue makes semiannual payments and has an embedded cost of 6 per cent annually. It considers a debt-equity ratio of 0.60 and a 22 per cent corporate tax rate. In this year, the company has an EBIT of $3.15 million. Depreciation, the increase in net working capital, and capital spending were $265,000, $105,000, and $495,000, respectively. Therefore, you expect that over the next five years, EBIT will grow at 15 per cent per year, depreciation and capital spending will grow at 20 per cent per year, and NWC will grow at 10 per cent per year. It also has $19.5 million in debt and 400,000 shares outstanding. After Year-5, the adjusted cash flow from assets is expected to grow at 3.50 per cent indefinitely.
Problem 1: What is the cost of Equity in percentage?
Problem 2: What is the cost of debt in percentage?
Problem 3: What is the WACC in percentage?
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: What is the cost of Equity in percentage? Sweet Pie company, just paid $0.65 as a dividend, which is expected to grow at 4.0 per cent.
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