Company Jefe is in the private equity business, and is having a meeting with the CFO to discuss expansion. Calculate the Company Jefe's weighted average cost of capital (WACC) using all of the information below. Be sure to calculate the cost of equity using the dividend discount model and the capital asset pricing model. In addition, state the current yield for the bonds and the dividend yield for the common shares.
EQUITY INFORMATION
50 million shares outstanding; market price = $80 per share; book value = $75 per share; beta = 1.15
Expected market return = 14%; risk-free rate = 5%; The previous dividend was $7.4109
The firm’s dividend is expected to grow by 5.25% forever.
DEBT INFORMATION
$1,000,000,000 in outstanding debt (face value); current quote = 108.560
coupon rate = 9% paid annually; 15 years to maturity; tax rate = 40%
PREFERRED STOCK
5 million shares outstanding; dividend =$10; market price = $111.10
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