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 = %

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%

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