Caspian Sea Drinks' is financed with 60.00% equity and the remainder in debt. They have 10.00-year, semi-annual pay, 5.80% coupon bonds which sell for 97.91% of par.

Caspian Sea Drinks' is financed with 60.00% equity and the remainder in debt. They have 10.00-year, semi-annual pay, 5.80% coupon bonds which sell for 97.91% of par. Their stock currently has a market value of $24.05 and Mr. Bensen believes the market estimates that dividends will grow at 3.56% forever. Next year's dividend is projected to be $2.66. Assuming a marginal tax rate of 20.00%, what is their WACC (weighted average cost of capital)?

Expert Solution

Weighted average cost of capital WACC:

A	B	C	D
Particulars	Weight	Rate	Weighted rate
Debt	40.00%	4.94%	1.98%
Equity	60.00%	14.62%	8.77%

WACC		10.75

Wweighted average cost of capital (WACC) 10.75%.

So, the solution formulae are:

Hence, the weighted average cost of capital (WACC) 10.75%.

Weighted average cost of capital (WACC) 10.75%.

Umair answered 2 years ago

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