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    Company's WACC If All Equity Used is From Retained Earnings

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    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 $52.50 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?

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    https://brainmass.com/business/weighted-average-cost-of-capital/companys-wacc-equity-retained-earnings-368819

    Solution Preview

    Answer: We have,
    D(1) $2.50
    Dividend growth rate 5.50%
    Current ...

    Solution Summary

    The solution determines what is the company's WACC if all equity used is from retained earnings.

    $2.19