All the equity used is from retained earnings

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Reference no: EM13953901

Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D₁ = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $80.00 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company’s WACC if all the equity used is from retained earnings?

a. 6.77%

b. 8.26%

c. 7.31%

d. 6.63%

e. 5.75%

Reference no: EM13953901

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