Question

The company has 500,000 shares. The dividend to be paid after one year is expected to...

The company has 500,000 shares. The dividend to be paid after one year is expected to be EUR 1.5 per share, after which the dividend is expected to increase by 3% per year. Investors' return requirement per share is 13%. In addition, the company has issued a bond with a maturity of four years. The bond has a nominal value of EUR 3 million and a coupon rate of 8%. The Netherlands government risk-free bonds, on the other hand, currently have a 2% annual yield (“yield to maturity”) and the company has a credit rating corresponding to a 3% risk premium (ie the yield requirement above the risk-free interest rate).

What is the weighted average cost of capital (WACC) of a company if the corporate tax rate is 20%?

Select one:

a. 9.0%

b. 9.4%

c. 9.8%

d. 10.2%

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