1. A stock has just paid $4 of dividend. The dividend is expected to grow at a constant rate of 8% per year, and the common stock currently sells for $54. The before tax cost of debt is 8%, and the tax rate is 20%. The target capital structure consists of 30% debt and 70% common equity. What is the companies WACC if all the equity used is from retained earnings?
A) 13.91%
B) 12.20%
C) 12.07%
D) 14.30%
E) 13.12%
2. Taxes paid on salvaged assets, tax rate x (salvage value - book value), ______ if the tax rate decreases.
A) Decreases
B) do not change
C) Increases