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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)?

Solutions

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%.

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