Can someone please explain this particular portion of the problem *D*/(*D* + *E*) = 0.8033/1.8033 = 0.445. given the following

Before-tax cost of new debt 8 percent Tax rate 40 percent Target debt-to-equity ratio 0.8033 Stock price $30 Next year’s dividend $1.50 Estimated growth rate 7 percent

Solution

CALC WACC

Cost of equity = *D*_{1}/*P*_{0} + *g* = $1.50/$30 + 7% = 5% + 7% = 12%

*D*/(*D* + *E*) = 0.8033/1.8033 = 0.445

WACC = [(0.445) (0.08)(1 − 0.4)] + [(0.555)(0.12)] = 8.8%