Question: If a company has a targeted capital structure of 40% long term debt and 60% common stock. The debt is yielding 6% and the corporate tax rate is 35%. The common stock is trading at $50 per share and next year's dividend is $2.50 per share that is growing by 4% per year. Using the dividend discount model, what is the company's WACC?
If the company increases the amount of long term debt so the capital structure will be 60% debt and 40% equity will this lower the WACC? Please explain.