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Pine Tree Farms Corporation (PTFC) has a target capital structure of
40% debt, 10% preferred stock, and 50% common stock. Currently PTFC has a
capital structure of 75% debt, 10% preferred stock, and 15% common
stock. The after tax cost of debt is 4%. The preferred stock has a par
value of $100 per share, a $7 per share dividend, and a market price of
$60 per share. The common stock of PTFC trades at $86 per share and has a
projected dividend (D1) of $2.55. The stock price and dividend are
expected to continue to grow at 7% per year for the foreseeable future.
The CFO expects the company to have $590,000 available from retained
earnings.
What is PTFC’s weighted average cost of capital (WACC)?
