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    Sorensen Systems Inc. WACC

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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 $60.00 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?

    8.15%
    8.00%
    8.96%
    7.34%
    7.78%

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    Solution Preview

    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 ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer what the company's WACC is if all the equity used is from retained earnings.

    $2.19