Question

Patton Paints Corporation has a target capital structure of 35% debt and 65% common equity, with...

Patton Paints Corporation has a target capital structure of 35% debt and 65% common equity, with no preferred stock. Its before-tax cost of debt is 10% and its marginal tax rate is 40%. The current stock price is P0 = $30.00. The last dividend was D0 = $2.50, and it is expected to grow at a 8% constant rate. What is its cost of common equity and its WACC? Round your answers to two decimal places.

rs = %

WACC = %

Homework Answers

Answer #1

cost of common equity = 2.50*1.08/30 + 8%

cost of common equity = 17.00%

Amount weight cost weight*cost
equity                              65.00 0.6500 17.0000% 0.1105
debt                              35.00 0.3500 6.0000% 0.0210

WACC = 13.15%

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with...
Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock. Its before-tax cost of debt is 9%, and its marginal tax rate is 25%. The current stock price is P0 = $21.50. The last dividend was D0 = $2.50, and it is expected to grow at a 4% constant rate. What is the rs? What is its cost of common equity and its WACC?
Palencia Paints Corporation has a target capital structure of 40% debt and 60% common equity, with...
Palencia Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 13%, and its marginal tax rate is 25%. The current stock price is P0 = $27.00. The last dividend was D0 = $2.25, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal...
Patton paints has a target capital structure of 60% debt and 40% equity with no preferred...
Patton paints has a target capital structure of 60% debt and 40% equity with no preferred stock. It'd before tax cost of debt is 12% and marginal tax rate is 40% . The current stock price is $22.50. The last dividend was $2.00 (Do) and is expected to grow at a constant rate of 7%. What is the cost of common equity and WACC?
Question 3 a) The Evanec Company's next expected dividend, D1, is $3.63; its growth rate is...
Question 3 a) The Evanec Company's next expected dividend, D1, is $3.63; its growth rate is 5%; and its common stock now sells for $30. New stock (external equity) can be sold to net $25.50 per share. What is Evanec's cost of retained earnings, rs? Round your answer to two decimal places. What is Evanec's percentage flotation cost, F? Round your answer to two decimal places. What is Evanec's cost of new common stock, re? Round your answer to two...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund...
Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund its $9 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 15%, a before-tax cost of debt of 8%, and a tax rate of 25%. The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D1) is $4, and the current stock price is $34. What is the company's expected growth...
Company A has a target capital structure of 65% common equity, 30% debt, and 5% preferred...
Company A has a target capital structure of 65% common equity, 30% debt, and 5% preferred stock. The cost of equity is 15.5%. The firm sells bonds at par value to yield an after-tax cost of 7.0%. The cost of preferred stock financing is estimated to be 11%. What is Company A's weighted average cost of capital?
Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at...
Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd = 12%, and its common stock currently pays a $3.25 dividend per share (D0 = $3.25). The stock's price is currently $20.00, its dividend is expected to grow at a constant rate of 8% per year, its tax rate is 35%, and its WACC is 15.95%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your...
Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at...
Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd = 10%, and its common stock currently pays a $4.00 dividend per share (D0 = $4.00). The stock's price is currently $33.25, its dividend is expected to grow at a constant rate of 8% per year, its tax rate is 35%, and its WACC is 13.10%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your...
David Ortiz Motors has a target capital structure of 35% debt and 65% equity. The yield...
David Ortiz Motors has a target capital structure of 35% debt and 65% equity. The yield to maturity on the company's outstanding bonds is 8%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 10.51%. What is the company's cost of equity capital? Round your answer to two decimal places.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT