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Gladbach Company has a capital structure, which consists of 60 percent long-term debt and 40...

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Finance

Gladbach Company has a capital structure, which consists of 60 percent long-term debt and 40 percent common stock. The companys CFO has obtained the following information:

  • The companys bonds are selling for $1035 per bond with coupon rate of 8% and maturity value of $1,000. The bond will be matured in 21 years.
  • The companys common stock is expected to pay a $3.00 dividend at year end, and the dividend is expected to grow at a constant rate of 6.5 percent a year. The common stock currently sells for $56 a share.
  • Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget.
  • The companys tax rate is 40 percent.

What is the companys weighted average cost of capital (WACC)?

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