What is the firm weighted average cost of capital

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Reference no: EM131359627

J. Ross and Sons Inc. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. The firm's current after tax cost of debt is 6 percent, and it can sell as much debt as it wishes at this rate. The firm's preferred stock currently sells for $90 per share and pays a dividend of $10 per share. Ross's common stock currently sells for $40 per share. The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10 percent per year.

a) What is the firm's cost of common stock, r_s?

b) What is the firm's cost of preferred stock, r_P?

c) What is the firm's weighted average cost of capital (WACC)?

Reference no: EM131359627

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