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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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#### 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