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M&M has 570,000 shares of common stock outstanding at a market price of $31.8 a share....

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Finance

M&M has 570,000 shares of common stock outstanding at amarket price of $31.8 a share. Last month, Hershey paid an annualdividend in the amount of $1.85 per share. The dividend growth rateis 6.2%. Hershey also has 25,000 bonds outstanding with a facevalue of $1,000 per bond. The bonds carry a 5.4% coupon, payinterest annually, and mature in 10 years. The bonds are selling at99% of face value. The company's tax rate is 25%. What is Hershey'sweighted average cost of capital?

A.7.42%B.7.63%C.7.85%D.8.04%E.8.26%

Answer & Explanation Solved by verified expert
3.9 Ratings (451 Votes)
Market value of equity 570000318 18126000Market value of bond 0991000 990Market value of debt 25000990 24750000Total firm capital 18126000 24750000 42876000Weight of equity in the capital structure 1812600042876000 04228100    See Answer
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M&M has 570,000 shares of common stock outstanding at amarket price of $31.8 a share. Last month, Hershey paid an annualdividend in the amount of $1.85 per share. The dividend growth rateis 6.2%. Hershey also has 25,000 bonds outstanding with a facevalue of $1,000 per bond. The bonds carry a 5.4% coupon, payinterest annually, and mature in 10 years. The bonds are selling at99% of face value. The company's tax rate is 25%. What is Hershey'sweighted average cost of capital?A.7.42%B.7.63%C.7.85%D.8.04%E.8.26%

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