Question

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 = %

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%