Corporate investment decisions | Business & Finance homework help

The dividend discount model (DDM) is a method of valuing a company by estimating the present value of future dividends. This can be calculated using the following formula:

WACC = r_D * D/V + r_E * (1-T)* E/V

Where:

r_D = required return on equity

D= total dividend paid annually

V= current market value of firm’s outstanding stock

r_E = required return on debt

T= Corporate tax rate

E= total amount of outstanding debt

For this example, let’s assume the following values:

r_D = 9%

D = $2,000

V = $10,000

r_E = 8%

T = 0.35

E= $4,000

[Insert equation here] WACC=(9%*$2,000/$10,000)+(8%*(1-0.35)*$4,000/$10,000)

[Insert answer here] WACC= 9.18%