Suppose stock in the Top Gun Corporation has a beta of .80. The market risk premium...

Suppose stock in the Top Gun Corporation has a beta of .80. The market risk premium is 6%, and the risk-free rate is 6%. Top Gun’s last dividend was $1.20 per share, and the dividend is expected to grow at a constant 8% for the foreseeable future. The stock is currently selling for $45 per share. Estimate the firm’s component cost of equity capital.

Continuing the analysis, suppose Top Gun has a target capital structure of 1/3 debt and 2/3 common equity. If the yield to maturity its outstanding bonds is 9%, and the tax rate is 35%, calculate the firm’s WACC.

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jeff jeffy answered 1 year ago

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