## 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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