Hatch Corporation's target capital structure is 40% debt, 50% common stock, and 10% preferred stock. Information regarding the company's cost of capital can be summarized as follows:
The company's bonds have a nominal yield to maturity of 7%.
The company's preferred stock sells for $40 a share and pays an annual dividend of $4 a share.
The company's common stock sells for $25 a share and is expected to pay a dividend of $2 a share at the end of the year (i.e., D1 = $2.00). The dividend is expected to grow at a constant rate of 7% a year.
The company has no retained earnings.
The company's tax rate is 40%.
What is the company's weighted average cost of capital (WACC)? A. 10.59%. B. 10.18%. C. 10.03%.
