Question

A firm has a WACC of 10%. It is financed with 30% debt and 70% equity....

A firm has a WACC of 10%. It is financed with 30% debt and 70% equity. The firm s cost of debt is 12% and its tax rate is 40%. If the firm s dividend growth rate is 6% and its current stock price is $40, what is the value of the next dividend the firm is expected to pay?

A. $5.0 B. $4.0 C. $3.0 D. $2.0 E. $1.0

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Answer #1

To solve the above-mentioned question, we will be using two formulas - Weighted Average Cost of Capital and the Gordon Growth Model. Please refer to the images below:

Let me know if you have any doubt in the comment section below.

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