The Boonville and Western Transportation Co. has the following capital structure.
 Stock $50 mil with a P/E of 8
 Bonds $20 million at 8 %
The company has a tax rate of 35%
What is the weighted average cost of Capital (WACC)
If the Boonville and Western Transportation Co had Bonds of $50 million and Stock of $20 million what would the (WACC) be?
Is this an overstatement?
- What is the weighted average cost of Capital (WACC)?
We need to know the stock's growth rate g and its dividend payout ratio d.
The dividend paid is then the product of earnings and dividend payot ratio, i.e., D= E*d
By Dividend Discounted Model, the stock's cost ...
The solution presents all the calculations for the weighted average cost of capital (WACC) plus a response to the question about an overstatement.