What is the company’s WACC if all the equity used is from retained earnings?
Question 2 Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50),
the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $52.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity.
What is the company’s WACC if all the equity used is from retained earnings?
7.07% 7.36% 7.67% 7.98% 8.29%