Cost of Capital. Dartmouth Systems, Inc., is a leading supplier of sorters and collators to the copier and computer printer market. A security analyst's report issued by a national brokerage firm indicates that debt yielding 8%, comprises 50% of Dartmouth's overall capital structure. Furthermore, both earnings and dividends are not expected to grow during coming years.
Currently, common stock in the company is priced at $75, and it should pay $7.50 per share in dividends during the coming year. This yield compares favorably with the 7% return currently available on risk-free securities and the 13% average for all common stocks, given the company's estimated beta of 0.5.
A. Calculate Dartmouth's component cost of equity using both the capital asset pricing model and the dividend yields plus expected growth model.
B. Assuming a 40% marginal federal plus state income tax rate, calculate Dartmouth's weighted average cost of capital.

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The Answer of Cost of Capital. Dartmouth Systems, Inc., is a leading supplier of sorters and collators to the copier and computer printer market. A security analyst's report issued by a national brokerage firm indicates that debt yielding 8%, comprises 50% of Dartmouth's overall capital structure. Furthermore, both earnings and dividends are not expected to grow during coming years.
Currently, common stock in the company is priced at $75, and it should pay $7.50 per share in dividends during the coming year. This yield compares favorably with the 7% return currently available on risk-free securities and the 13% average for all common stocks, given the company's estimated beta of 0.5.
A. Calculate Dartmouth's component cost of equity using both the capital asset pricing model and the dividend yields plus expected growth model.
B. Assuming a 40% marginal federal plus state income tax rate, calculate Dartmouth's weighted average cost of capital.