Dobson Dairies Has a Capital Structure Which Consists of 60

question 41

Multiple Choice

Dobson Dairies has a capital structure which consists of 60 percent long-term debt and 40 percent common stock. The company's CFO has obtained the following information: • The before-tax yield to maturity on the company's bonds is 8 percent.
• The company's common stock is expected to pay a $3.00 dividend at year end (D1 = $3.00) • Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget.
• The company's tax rate is 40 percent.
What is the company's weighted average cost of capital (WACC) ?

• A) 12.00%
• B) 8.03%
• C) 9.34%
• D) 8.00%
• E) 7.68%

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