What is the weighted average cost of capital for Foggy Futures Weather Forecasters? The firm is...

What is the weighted average cost of capital for Foggy Futures Weather Forecasters? The firm is in the 25% tax bracket. The optimal capital structure is listed below:

Source of Capital	Weight
Long-Term Debt	45%
Preferred Stock	5%
Common Stock	50%

Debt:The firm can issue $1,000 par value, 6% coupon interest bonds with a 15-year maturity date. The bond pays coupons payments semi-annually. The bond has an average discount of $55 and flotation costs of $20 per bond. The selling price is $1,000.

Preferred Stock:The firm can sell preferred stock with a dividend that is 7.25% of the current price. The stock costs $110. The cost of issuing and selling the stock is expected to be $8 per share.

Common Stock:The firm’s common stock is currently selling for $70 per share. The firm expects to pay cash dividends of $5 per share next year. The dividends have been growing at 6%. The stock must be discounted by $7, and flotation costs are expected to amount to $5 per share.

Retained Earnings:The firm expects to have enough retained earnings in the coming year to be used in place of any new stock being issued.

Expert Solution

jeff jeffy answered 1 year ago

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