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What is the weighted average cost of capital

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Bubba Inc is looking to find its weighted average cost of capital to use in evaluating upcoming investments. The target debt to equity ratio for the company is 50%, with a tax rate of only 40%. Bonds that are trading in the market place which have similar risk to Bubba Inc. are yielding 8%.

  • Bubba Inc. also has a beta of .90 and many analysts are forecasting a market risk premium to be 7%. Government T-bills are currently yielding 8%. Furthermore, Bubba Inc. just issued a dividend of $1.80 per share and the CFO provided guidance to the markets that this dividend was expected to grow at 7% indefinitely. The stock price is currently trading at $25 per share.

problem 1: What is the Weighted Average Cost of Capital?

Reference no: EM132785698

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