Dobson Dairies Has a Capital Structure Which Consists of 60

Multiple Choice

Dobson Dairies has a capital structure which consists of 60 percent long-term debt and 40 percent common stock. The company's CFO has obtained the following information: • The before-tax yield to maturity on the company's bonds is 8 percent.
• The company's common stock is expected to pay a $3.00 dividend at year end (D1 = $3.00) • Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget.
• The company's tax rate is 40 percent.
What is the company's weighted average cost of capital (WACC) ?

A) 12.00%
B) 8.03%
C) 9.34%
D) 8.00%
E) 7.68%