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%.

  1. Find the component costs
  2. Find the component weights
  3. 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

 

 

Download Full Solution

Comments

  • HWA
    Rasha

    this is a very good website

  • HWA
    maani

    I have 50 questions for the same test your page is showing only 28

  • HWA
    joeanne

    hi can you please help or guide me to answer my assignments. thanks

  • HWA
    joeanne

    hi can anyone help or guide me to my assignments. thanks

  • HWA
    Monik


  • HWA
    Cristina

    This solution is perfect ...thanks

  • HWA
    Janete

    Hello Allison,I love the 2nd image that you did! I also, had never heard of SumoPaint, is something that I will have to exolpre a bit! I understand completely the 52 (or so) youtube videos that you probably watched. Sometimes they have what you want, sometimes they don't! However, it is always satisfying when you are able to produce something that you have taught yourself. Great job!Debra 0 likes

  • HWA
    Sandeep

    Perfect bank of solution. 

  • HWA
    Oxana

    great !

  • HWA
    Paul Brandon-Fritzius

    thanks for the quick response. the solution looks good. :)

  • HWA
    tina Johnson

    thnx for the answer. it was perfect. just the way i wanted it. 

  • HWA
    Giuseppe

    works fine.