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The Black Knight has a debt-equity ratio of .6, a beta of 1.12, a stock price...

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Finance

The Black Knight has a debt-equity ratio of .6, a beta of 1.12,a stock price of $42 a share, and a tax rate of 34 percent. Thefirm just paid an annual dividend of $.80 a share and plans toincrease that amount by 3 percent annually in the future. The firmhas a pre-tax cost of debt of 7.7 percent. The risk-free rate is3.8 percent and the market rate of return is 8.4 percent. What isBlack Knight’s WACC?

a. 6.08 percent

b. 6.25 percent

c. 7.15 percent

d. 7.24 percent

Answer & Explanation Solved by verified expert
4.2 Ratings (900 Votes)
Information providedDebt equity ratio 06Beta 112Stock price 42Current stock dividend 080Dividend growth rate 3Pretax cost of debt 77Risk free rate 38Market rate of return 84Tax rate 34The cost of equity is calculated using the capital asset    See Answer
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Transcribed Image Text

The Black Knight has a debt-equity ratio of .6, a beta of 1.12,a stock price of $42 a share, and a tax rate of 34 percent. Thefirm just paid an annual dividend of $.80 a share and plans toincrease that amount by 3 percent annually in the future. The firmhas a pre-tax cost of debt of 7.7 percent. The risk-free rate is3.8 percent and the market rate of return is 8.4 percent. What isBlack Knight’s WACC?a. 6.08 percentb. 6.25 percentc. 7.15 percentd. 7.24 percent

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