Lafantay incorporated has $75 million equity and $25 million of debt. The company uses the Dividend Growth Model approach to determine the cost of equity. Lafantay’s common stock currently trades at $40.5 per share. The dividend next year is expected to be $2.50 per share, and the dividend is expected to grow forever at a constant rate of 7 percent a year. Lafantay’s 8 percent coupon rate, quarterly payment, $1,000 par value bond, which matures in 20 years, currently sells at a price of $686.86. The company’s tax rate is 40 percent. What is the company’s weighted average cost of capital, WACC?
Please use excel and show equations.
A. 8.33%
B. 9.24%
C. 10.12%
D. 10.92%
E. 11.71%
Thank you!