Answer:
WACC = 7.89%
Explanation:
Lets find "cost of equity" first.
The formula is:
[tex]k_e=\frac{D_1}{P_0}+g[/tex]
Which is basically the next year dividend divided by stock price summed with growth rate. So cost of equity is:
[tex]k_e=\frac{0.25}{35}+0.08=0.0871[/tex]
Now, "cost of debt":
Formula is:
[tex]k_d=YTM(1-T)[/tex]
Which is the yield to maturity times "1 - tax rate", so it will be:
[tex]k_d=0.07(1-0.4)=0.042[/tex]
WACC formula is:
[tex]WACC=W_e*k_e+W_d*K_d[/tex]
Where
W_e is weight of equity, which is 45/(45+10) = 45/55 = 9/11
W_d is weight of debt, which is 10/(45+10) = 10/55 = 2/11
Now, wacc is:
[tex]WACC=0.0871*\frac{9}{11}+0.042*\frac{2}{11}=0.0789[/tex]
In percentage, 0.0789 * 100 = 7.89%
WACC = 7.89%
