Hilliard Corp

question 22

Multiple Choice

Hilliard Corp. wants to calculate its weighted average cost of capital (WACC) • The company's long-term bonds currently offer a yield to maturity of 8 percent. • The company's stock price is $32 per share (P0 = $32) • The company recently paid a dividend of $2 per share (D0 = $2.00) • The dividend is expected to grow at a constant rate of 6 percent a year (g = 6%) • The company pays a 10 percent flotation cost whenever it issues new common stock (F = 10%) • The company's target capital structure is 75 percent equity and 25 percent debt.
• The company's tax rate is 40 percent.
• The company anticipates issuing new common stock during the upcoming year.
What is the company's WACC?

• A) 10.67%
• B) 11.22%
• C) 11.47%
• D) 12.02%
• E) 12.56%

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Definitions:

Defined-Contribution Plan

A retirement plan where both employer and employee contribute to an individual account for the employee, with the final benefit based on the contributions and investment performance.

Profit-Sharing Plan

A retirement plan that gives employees a share in the profits of the company, often vested over time.

Simplified Method

A straightforward calculation approach, often used for determining the taxable portion of annuity payments or retirement benefits.

Qualified Pension Plan

A retirement plan that meets requirements set forth by the IRS to qualify for favorable tax treatment.