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Global Technology's capital structure

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1. Weighted average cost of capital

Global Technology's capital structure is as follows:
Debt 35%
Preferred stock 15
Common equity 50
The after-tax cost of debt is 6.5 percent; the cost of preferred stock is 10 percent; and the cost of common equity (in the form of retained earnings) is 13.5 percent
Calculate Global Technology's weighted average cost of capital in a manner similar to Table 11-1 on page 313
Table listed below:
Cost (after-tax) Weights Weighted Cost
Debt Kd 7.05% 30% 2.12%
Preferred stock Kp 10.94 10 1.09
Common equity (retained earnings) Ke 12.00 60 7.20
Weighted average cost of capital Ka 10.41%

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Solution Summary

This solution is comprised of a detailed explanation to calculate Global Technology's weighted average cost of capital.