# Weighted avergage cost of capital for internal and external funds

Given the following information, calculate the WACC

Percent of capital structure:

Debt 55%

Common Equity 5

Preferred stock 40

Additional info:

Bond coupon rate 8.5%

Bond yield 7%

Bond flotation cost 2%

Dividend, expexted common $1.50

Price, common $30.00

Dividend, preferred 5%

Flotation cost, preferred 3%

Flotation cost, common 4%

Corporate growth rate 6%

Corporate tax rate 35%

a) Calculate the cost of capital assuming use of internally generated funds

b) Calculate the cost of capital assuming use of externally generated funds

c) Why is there a difference? Why does only common equity change?

https://brainmass.com/business/bond-valuation/calculate-the-weighted-avergage-cost-of-capital-for-internal-and-external-funds-256819

#### Solution Preview

Given the following information, calculate the WACC

Percent of capital structure:

Debt 55%

Common Equity 5

Preferred stock 40

Additional info:

Bond ...

#### Solution Summary

The solution determines the weighted average cost of capital for internal and external funds. The cost of capital assuming use of internally and externally generated funds is calculated.