COST OF COMMON EQUITY AND WACO Palencia Paints Corporation h

COST OF COMMON EQUITY AND WACO Palencia Paints Corporation has a target capital structure of 30% debt and 70% common equity, with no preferred stock. Its before-tax cost of debt is 10%, and its marginal tax rate is 40%. The current stock price is Po = $31.00. The last dividend was Do = $2.50, and it is expected to grow at a 896 constant rate. What is its cost of common equity and its WACC? Round your answers to two decimal places. Do not round your intermediate calculations. b. WACC-

Solution

cost of equity = 2.50 * 1.08/31 + 8% = 16.71%

WACC = 13.50%

	Amount	weight	cost	weight*cost
equity	70.00	0.7000	16.7097%	0.1170
debt	30.00	0.3000	6.0000%	0.0180