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    This posting shows the calculation for the given capital.

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    A company's capital structure consists solely of debt and common equity. It can issue debt at rd=11%, and its common stock currently pays a $2.00 dividend per share (Do=$2.00). The stock's price is currently $24.75, its dividend is expected to grow at a constant rate of 7% per year, its tax rate is 35%, and it WACC is 13.95%. How do I figure out what percentage of the company's capital structure consists of debt?

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    Solution Preview

    rs = D1/P0 + g = $2(1.07)/$24.75 + 7%

    = 8.65% + 7% = ...

    Solution Summary

    This solution provides the calculation for a company's capital structure that consists of only debt and common equity. Calculations are provided.