Question

Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at r_d = 12%, and its common stock currently pays a $3.50 dividend per share (D₀ = $3.50). The stock's price is currently $32.25, its dividend is expected to grow at a constant rate of 9% per year, its tax rate is 25%, and its WACC is 12.90%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places.

%

Answer 1

	Cost of equity =		20.83%
	3.5*109%/32.25+9%
	Post tax cost of debt =		9.00%
	12%*(1-25%)
	Lets assume weight of debt = x therefore weight of eqity = (1-x)
	we have below equation
	12.9%=	x*9%+(1-x)*20.83%
	12.9%=	9%x+20.83%-20.83%x
	7.93%	11.83%X
	x=	67.03%
	Weight of debt =	67.03%
	answer =	67.03%