Assignment: Investment decisions
Scenario: Wilson Corporation (not real) has a targeted capital structure of 40% long term debt and 60% common stock. The debt is yielding 6% and the corporate tax rate is 35%. The common stock is trading at $50 per share and next year's dividend is $2.50 per share that is growing by 4% per year.
Show all work and analysis
Computations/calculations Must be shown
Please note: numerical text of computations will not be accepted. must either write out each step of an equation leading to the solution in Word
Using tables
Prepare a minimum 700-word analysis including the following:
• Calculate the company's weighted average cost of capital. Use the dividend discount model. Show calculations in Microsoft Word.
• The company's CEO has stated if the company increases the amount of long term debt so the capital structure will be 60% debt and 40% equity, this will lower its WACC. Explain and defend why you agree or disagree. Report how would you advise the CEO.