Reference no: EM133001944
Brooks window seals and company is trying to calculate its cost of capital for use in a capital budgeting decision. Mr. glass, the vice president of finance has given you the following information and has asked you to compute the weighted average cost of capital.
The company currently has outstanding a bond with a 8.2% coupon rate and another bond with a 5.2% coupon rate. The firm has been informed by his investment banker that bonds of equal risk and credit rating are now selling to yield 9.2%.
The common stock has a price of $64 and an expected Dividend of $2.50 per share. The corporate tax rate is 35%. The flotation cost is 2.0% of the selling price for a preferred stock. The optimum capital structure is 30% debt, 10% preferred stock and 60% common equity in the form of retained earnings.
Compute the cost of capital for the individual components in a capital structure.
A. Debt is what %?
Preferred stock is what percentage?
Common equity is what percentage
Weighted average cost of capital is what percentage?
B. Calculate the Weighted cost of each source of capital and the weighted average cost of capital.
What is the Debt%
What is the Preferred Stock?
What is the Common Equity%?
What is the Weighted Average Cost of Capital %?
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