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# After Tax Equity and Weighted Average Cost of Capital

Find weighted average of cost of capital, calculate after tax cost of new debt and common equity...

Common stock 7.8 million shares outstanding-selling for \$65 per share, expected dividend at end of current year is 55% of 7.80 EPS. Expect past trends to continue; g may be based on the growth rate, current interest rate on new debt is 9% firms marginal tax rate is 40%. This is what I came up with, can you help me write in a more formal formula?

Debt 104,000,000.
Common equity 156,000,000.
Total Liability and Equity 260,000,000.

k=0.55 (10%)(0.6) +0.10 (10.3%) + 0.09 (13.4%)

After tax cost 372,555,910.5 ( I don't understand this figure!) Weighted average cost of capital 591,084

#### Solution Preview

This is a tricky question:
In this case, stock price P = 65
D = 55% * 7.80 = 4.29
net income = 7.8 EPS * 7.8 million share = 60.84 million
common equity = 156 ...

#### Solution Summary

The solution determines the after tax equity and weighted average cost of capital.

\$2.19