Estimating weighted cost of capital

Assignment Help Financial Management

Reference no: EM13948812

Assume the following percentage capital structure is considered optimal for this firm.

Debt .50

Preferred stock .10

Common equity .40

The firm has estimated the after tax cost of each source of funds. Debt costs .07, preferred stock .11, retained earnings .20 and new common stock .22. The firm is operating under conditions of capital rationing and therefore will not sell new stock to the public. What is the weighted cost of capital for this firm?

Reference no: EM13948812

Questions Cloud

Fixed assets and capital expenditures first to recognize : What is examples free cash flow and how can a company can use its free cash flow? Does a company have to pay off its fixed assets and capital expenditures first to recognize or have free cash flow available?

Increase the value of firms net working capital : Which one of the following will increase the value of a firm's net working capital?

Change the font size of your headings. : Use the costs.doc document as your guide to create a table on the Costs worksheet to calculate the total costs of the high school reunion.

What is the cost of equity after restructuring : A firm has an expected perpetual EBIT = $6,000. The unlevered cost of capital = 8% and there are 20,000 shares of stock outstanding. The firm is considering issuing $10,000 in new par bonds to add financial leverage to the firm. The proceeds of the d..

Estimating weighted cost of capital : The firm has estimated the after tax cost of each source of funds. Debt costs .07, preferred stock .11, retained earnings .20 and new common stock .22. The firm is operating under conditions of capital rationing and therefore will not sell new stock ..

Preventing the importation of gray goods legitimately : What does this mean? Is it correct? Why or why not?

Determine angular velocities at instant : The assembly consists of two 10-kg bars which are pin connected. If the bars are released from rest when u = 60°, determine their angular velocities at the instant u = 30°. The 5-kg disk at C has a radius of 0.5 m and rolls without slipping.

What is the after tax salvage value : Your firm needs a machine which costs $120,000, and requires $27,000 in maintenance for each year of its 7 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 7 year class life category. Assume a tax rate of 40% ..

Concept of the third degree price discrimination : Explain the concept of the third degree price discrimination. Who gains and who loses and how?

User Account

All Pages