Calculation of weighted average cost of capital from given data
Hilliard Corp. wants to calculate its weighted average cost of capital (WACC). The company's CFO has collected the following information-
• The company's long-term bonds currently offer a yield to maturity of 8 percent.
• The company's stock price is $32 per share (P0 = $32).
• The company recently paid a dividend of $2 per share (D0 = $2.00).
• The dividend is expected to grow at a constant rate of 6 percent a year (g = 6%).
• The company pays a 10 percent flotation cost whenever it issues new common stock (F = 10%).
• The company's target capital structure is 75 percent equity and 25 percent debt.
• The company's tax rate is 40 percent.
• The company anticipates issuing new common stock during the upcoming year