OM FINAL

FIN 351 WACC Quiz

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Suppose the Widget Company has a capital structure composed of the following, in billions: Debt $30, Common equity $60, Preferred stock $30. The debt rating is of AA. The yield on AA debt is 8%. The marginal tax rate is 30%. The preferred annual dividend is $10, current stock price is $100. If the risk-free rate is 3%, the expected market risk premium is 5%, and the company’s stock beta is 1.25. What is Widget’s weighted average cost of capital?

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