Question

Thompson Co. has a beta of 1.35. The market risk premium is 8.5%. Thompson’s next annual dividend is expected to be $2.40, paid in exactly one year. Dividends are expected to grow at 6% per year indefinitely. The company’s bonds have a coupon rate of 8% and are priced in the market at par value. The company’s weighted average cost of capital (WACC) is 10%, and its tax rate is 25%. Thompson’s current share price is $40 per share.

What is Thompson’s cost of equity capital? (Express your answer in percentage terms (i.e. 58%), rounded to the closest number with no decimals)

Cost of equity capital = ___________________%

What is Thompson’s market value debt-equity (D/E) ratio? (Express your answer in DECIMAL terms (i.e. 4.56), rounded to 2 (TWO) decimals places)

D/E = ________________

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE