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# Weighted Average Cost of Capital

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1. Calculate the Weighted Average Cost of Capital for the following scenario. Johnson enterprise has a capital structure of 50% bonds, 30% preferred stock, and 20% common equity stock. Their corporate tax rate is 35%. They pay the bond holders 12%. They pay the preferred stock holders 7%. The common stock holders receive 18%. Calculate the WACC.

2. Increases in dividend payment can be both positive and negative news. Explain under which conditions an increase in dividend payment can be interpreted as a signal of good news? Of bad news?

3. Your opinion on the Good, the Bad, and the Ugly of Financial Leverage.

#### Solution Preview

1. Calculate the Weighted Average Cost of Capital for the following scenario. Johnson enterprise has a capital structure of 50% bonds, 30% preferred stock, and 20% common equity stock. Their corporate tax rate is 35%. They pay the bond holders 12%. They pay the preferred stock holders 7%. The common stock holders receive 18%. Calculate the WACC.
WACC= WACC (Weighted Average Cost of Capital) is an expression of this cost and is used to see if certain intended investments or ...

#### Solution Summary

Response provides steps to compute the Weighted Average Cost of Capital

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