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Solution Library
Calculation of Weighted Average Cost of Capital using New Common Stock and Retained Earnings
Question
Assets Claims
Current assets $200,000,000 Current Liabilities $100,000,000
Fixed Assets $400,000,000 Bonds ($1000 par) $200,000,000
Preferred stock (($25 par) $100,000,000
Retained earnings $ 50,000,000
Common stock ($10 par) $150,000,000
Total assets $600,000,000 Total claims $600,000,000
The bonds sell currently for $980, pay an annual 8% coupon, net $0.98 for each dollar sold, and mature in 20 years. The preferred stock sells currently for $30, pays an annual $3 dividend, and has 4% flotation costs. The common stock sells currently for $12; next year’s dividend is expected to be $0.75 with an anticipated annual growth rate of 6% and the flotation costs are 6%. The firm’s tax rate is 40%.
- Find the component costs
- Find the component weights
- Find the weighted average cost of capital using retained earnings
Find the weighted average cost of capital using new common stock
Summary
This question belongs to finance and discusses about calculation of weighted average cost of capital using new common stock of a company.
Total word count: Excel
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