12.1 Calculating the Cost of Equity Suppose stock in Boone Corporation has a beta of .90. The market risk premium is 7 percent, and the risk-free rate is 8 percent. Boone's last dividend was $1.80 per share, and the dividend is expected to grow at percent indefinitely. The stock currently sells for $25. What is Boone's cost of equity capital? (See Problem 1.) 12.2 Calculating the WACC In addition to the information in the previous problem, suppose Boone has a target debt-equity ratio of 50 percent. Its cost of debt is 8 percent, before taxes. If the tax rate is 21 percent, what is the WACC? (See Problem 9.) 7

12.1 Calculating the Cost of Equity Suppose stock in Boone Corporation has a beta of .90. The market risk premium is 7 percent, and the risk-free rate is 8 percent. Boone's last dividend was $1.80 per share, and the dividend is expected to grow at percent indefinitely. The stock currently sells for $25. What is Boone's cost of equity capital? (See Problem 1.) 12.2 Calculating the WACC In addition to the information in the previous problem, suppose Boone has a target debt-equity ratio of 50 percent. Its cost of debt is 8 percent, before taxes. If the tax rate is 21 percent, what is the WACC? (See Problem 9.) 7

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 11P

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