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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.