Morgan insurance ltd issued a fixed rate perpetual

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6. Morgan Insurance Ltd. issued a fixed-rate perpetual preferred stock three years ago and placed it privately with institutional investors. The stock was issued at $25 per share with a $1.75 dividend. If the company were to issue preferred stock today, the yield would be 6.5%. The stock’s current value is: 7. A financial analyst at Buckco Ltd. wants to compute the company’s weighted average cost of capital (WACC) using the dividend discount model. The analyst has gathered the following data: Before-tax cost of new debt 8% Tax rate 40% Target debt-to-equity ratio 0.8033 Stock price $30 Next year’s dividend $1.50 Estimated growth rate 7% 32 Learning Outcomes, Summary Overview, and Problems part-i-03 13 January 2012; 10:18:46 Buckco’s WACC is closest to: A. 8%. B. 9%. C. 12%.
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