Business Situation: A company 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. Question: Calculate this company’s weighted average cost of capital (WACC) AND use the dividend discount model. Show your calculations. Note: Please be aware that the answer must be derived by using the dividend discount model.
