Firm present weighted average cost of capital

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Reference no: EM131218210

A public limited company was recently formed to manufacture a new product. It has the following capital structure in the market value terms:

Debentures                                                 Rs. 7,000,000

Preferred stock                                            1,000,000

Common stock (320,000 shares)                   8,000,000

Total capital                                                 Rs.16,000,000

The company has a marginal tax rate of 40%. A study of publicly held companies in this line of business suggests that the required return on equity is about 17%. The company's debt is currently yielding 13%, and its preferred stock is yielding 15%.

Required:

Compute the firm's present weighted average cost of capital.

Reference no: EM131218210

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