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The Doug and Bob Corporation is calculating its WACC. Its 200,000 bonds have a 5%...

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Accounting

The Doug and Bob Corporation is calculating its WACC. Its 200,000 bonds have a 5% coupon, paid semi-annually, a current maturity of 30 years, and sell for a quoted price of 105. The firm's 400,000 shares of preferred stock (par $100) pays a 6.5% annual dividend and currently sells for $90. Doug and Bob is a constant growth firm which just paid a dividend of $2.00(D0), sells for $40.00 per share; it has 19,000,000 shares outstanding, and the common stock has an estimated growth rate of 9%. The firm's beta is 1.5, and the firm's marginal tax rate is 20%. The return on the market is 12% and the risk free rate is 5%.
What is the firm's after-tax cost of equity financing if we use the discounted cash flow approach (Gordon Growth model)?
14.0%
13.0%
14.5%
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