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In: Finance

Assume that the company has the following capital structure: Debt $15,000,000 Preferred stock $7,500,000 Common stock...

Assume that the company has the following capital structure:

Debt

$15,000,000

Preferred stock

$7,500,000

Common stock

$27,500,000

What will be the cost of capital if the company decide to raise the needed capital proportionally and with following costs? Please use the following information to calculate the weighted cost of capital:

  1. Bond:

A 30-year bond with a face value of $1000 and coupon interest rate of 13% and floatation cost of $20 (Tax is 35%)

  1. Preferred stock:

Face value of $35 that pays dividend $5 and floatation cost of $2

  1. Common stock:

Market value of $54 with floatation cost of $3.5. Last dividend was $6. The dividend will expect to grow at 7%.

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.

jeff jeffy answered 1 week ago
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