Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 6P
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8. Growth Company's current share price is $20.00 and it is expected to pay a $1.30 dividend per share next year. After that, the firm's dividends are expected to grow at a rate of 3.7% per year.
d. Growth Company has 5.3 million common shares outstanding and 1.5 million preferred shares outstanding, and its equity has a total book value of $50.1 million. Its liabilities have a market value of $20.3 million. If Growth Company's common and preferred shares are priced as in parts (a) and (b), what is the market value of Growth Company's assets?
e. Growth Company faces a 21% tax rate. Given the information in parts (a) through (d), and your answers to those problems, what is Growth Company's WACC?
Note: Assume that the firm will always be able to utilize its full interest tax shield.
**round to two decimal places**
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