Hatch Corporation’s target capital structure is 40 percent debt, 50 percent common stock, and 10 percent preferred stock. Information regarding the company’s cost of capital can be summarized as follows: The company’s bonds have a nominal yield to maturity of 7 percent. The company’s preferred stock sells for $ 40 a share and pays an annual dividend of $ 4 a share. The company’s common stock sells for $ 25 a share and is expected to pay a dividend of $ 2 a share at the end of the year (i.e. D1=$2.00). The dividend is expected to grow at a constant rate of 7 percent a year. The company has no retained earnings. The company’s tax rate is 40 percent. What is the company’s weighted average cost of capital (WACC)
A．
| A. 10.03%. |
B．
| B. 10.59%. |
C．
| C. 10.18%. |
参考答案：C
解析：
WACC=(Wd)(kd)(1-t)+(wps)(kps)+(wce)(kce)
where: wd=0.40; wce=0.50; wps=0.10; kd=0.07
kps=Dps/=4.00/40.00=0.10
kce=D1/P0+g=2.00/25.00+0.07=0.08+0.07=0.15
WACC=0.4×0.07×(1-0.4)+0.1×0.10+0.5×0.15
=0.0168+0.01+0.075
=0.1018 or 10.18%