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Hook industries' capital structure consists solely of debt and common equity. it can issue debt at rd = 11%, and its common stock currently pays a $2.00 dividend per share (d0 = $2.00). the stock's price is currently $29.50, its dividend is expected to grow at a constant rate of 9% per year, its tax rate is 40%, and its wacc is 13.80%. what percentage of the company's capital structure consists of debt? do not round intermediate calculations. round your answer to two decimal places.

Respuesta :

The company's capital structure consists of debt consists of 26.38% (Calculation: 13.80% = wd(11%)(1 – 0,40) + (1–wd)(16.38%)--> wd = 26.38% ) of debt based on the information shown on the question above. This problem can be solved by using the WACC which stated as WACC = wd(rd)(1 – T) + (1-wd)(rs) where WD is the debt percentage, rd is the return from debt capital, T is the tax, and rs is the return from the equity capital. First, you must find the return from equity by using this formula rs = D1/P0 + g (Calculation : 16.38% = $2(1.09)/$29.5 + 9%).

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