Calculate the firm weighted average of cost of capital

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Reference no: EM131546668

The shares of flowers inc. trading at $45. The company recently paid a dividend of $3 per share, and dividends are expected to grow by 5% each year for the indefinite future. The company's beta is 0.8, the market return is 15% and the yield on 10 year governmentt bonds is 2.50%. A bond issued by Flowers Inc with 10 years to maturity is trading at 110, which represents a yield of 4.35%. The copmany has 500 million of debt outstanding and has issued 12 million shares. If the corporate tax rate is 35%, calculate the firm's weighted average of cost of capital.

1) Show how to calculate the firm's cost of equity.

2) Show how to calculate the firm's cost of debt.

3) Calculate the firm's WACC

4) Comment on the usefulness of calculating a firm's WACC.

Reference no: EM131546668

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