Determine the weighted average of capital

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Reference no: EM131998568

Determine the weighted average of capital for following company under these conditions:

I. Income tax is 20 %

II. Preferred stocks have a nominal value of 10 000 USD per share. They are traded for 11 000 USD and guaranteed (promised) a permanent priority dividend 1 000 USD annum per share.

III. Common stocks were issued at a nominal value of 2 000 USD per share. Flotation cost of these new shares were calculated at 50 USD per share. Shares are traded on the market for 2 400 USD per share. Dividend is assumed at 10 % of par value in the first year, where the expected growth of dividends is assumed at 1 % every year.

IV. Long-term loans are provided at a current rate of 1 % every year.

V. Short-term loans have a current rate of 10 %.

Reference no: EM131998568

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