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    Weighted avergage cost of capital for internal and external funds

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    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?

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    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.

    $2.19