1 po Selma\'s Sushi is trying to decide whether to invest in a new line of busin
ID: 2803462 • Letter: 1
Question
1 po Selma's Sushi is trying to decide whether to invest in a new line of business selling premade sushi in the refrigerated section at grocery stores. Assume that their capital structure Further, analysts predict that their future cost of the current price of common stock is $26 and that the common stock is expected to pay a $2.30 dividend each year. The firm's tax rate is 22%. What is this firm's WACC? consists of 38% common stock, 12% preferred stock, and 50% debt. s 119 We also k that debt will be 4% and their cost of p eferred stock @ 6.24% 7.95% @ 6.68% None of these @ 8.85%Explanation / Answer
Cost of equity=(D1/P0)
=(2.3/26)=8.8461538%
Cost of debt after tax=4(1-0.22)=3.12%
WACC=Respectiuve costs*Respective weights
=(8.8461538*0.38)+(3.12*0.5)+(11*0.12)
=6.24%(Approx).
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