The current dividend for the company is $ 50/share and is expected to grow at 3% per year in the foreseeable future. The equity shares trade at $ 450/share. The preferred shares trade at $ 104/share. The convertible debt has a conversion privilege of 2 shares per $ 1 000 face value at maturity. The debt currently trades at $ 950.
The firm’s income tax rate is 30%
2.1. Calculate the firm’s weighted average cost of capital (WACC).
2.2. Discuss the firm’s dividend payout policy and whether it has an impact on share price.
2.3. Explain why the different sources of capital have different levels of risk and return.