Wilson Corporation (not real) has a targeted capital structure of 40%

Wilson Corporation (not real) has a targeted capital structure of 40%

Question # 00481257 Posted By: katetutor Updated on: 02/09/2017 11:06 PM Due on: 02/10/2017
Subject Finance Topic Finance Tutorials:
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Circumstances: Wilson Corporation (not real) has a targeted capital structure of 40% long term debt and 60% common stock. The debt is yielding 6% and the corporate tax rate is 35%. The common stock is trading at $50 per share and next year's dividend is $2.50 per share that is growing by 4% per year. Please provide analysis including the following:

  • Calculate the company's weighted average cost of capital. Use the dividend discount model. Show calculations in Microsoft® Word.
  • The company's CEO has stated if the company increases the amount of long term debt so the capital structure will be 60% debt and 40% equity, this will lower its WACC. Explain and defend why you agree or disagree. Report how would you advise the CEO.
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    Tutorial # 00477539 Posted By: katetutor Posted on: 02/09/2017 11:06 PM
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