Chatham Craft's capital structure consists of $30 million of debt and $90 million of equity. The Company's CFO has provided the following data: interest rate on debt is 8%; the Company's tax bracket is 30%; the current stock dividend is $2.00; the expected dividend growth rate is 8%; the current stock price is $40.
After submitting all your work, including formulas and calculations, answer the following problems.
29. What is Chatham's after-tax cost of debt ?
30. What is Chatham's cost of equity ?
31. What are the weightings of debt and equity ?
32. What is the WACC ?
33. If the proportion (weighting) of equity in Chatham's cap structure were to increase and the proportion of debt were to decrease, what would happen to the Company's WACC? Briefly describe why.