Cost of Capital Problem: Pepsi Cola
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Cost of Capital Problem: Pepsi Cola
The Pepsi bottling company is at its optimal capital structure of 70% common equity and 30% debt. Its weighted average cost of capital (WACC) is 14%. It has a marginal tax rate of 40%. Next year's dividend is expected to be $2.00 per share and it has a constant growth in earnings and dividends of 6%. The cost of common equity used in the WACC is based on retained earnings, while the before tax cost of debt is 12%. What is its current equilibrium stock price?
Options:
a. $12.73 b. $17.23 c. $18.33 d. $20.37 e. Other Answer
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Solution Summary
This solution shows step-by-step calculations to determine the current equilibrium stock price.
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