Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D₁ = $2.50), the dividend is expected to grow at a

Question

Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D₁ = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $37.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity used is from retained earnings? Do not round your intermediate calculations.
a. 9.94%
b. 8.80%
c. 9.41%
d. 7.58%
e. 8.72%

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