Scenario: Wilson Corporation (not real) has a targeted capital structure of 45% long term debt and 55% 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.
- 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 55% debt and 45% equity, this will lower its WACC. (Just work the WACC I will write the paper)