What is the weighted average cost of capital if:
Tax rate is 34%
A company has 150,000 shares of common stock outstanding with a market price of $40 per share
An annual dividend of $1.50 was paid last month
Dividend growth rate is 5%
There are 5,000 bonds outstanding with a $1000 face value per bond
bonds have a 10% coupon rate
bonds mature in 6 years
bonds are currently selling at 85% face value.
Please refer attached file for better clarity of functions used in MS Excel.
First let us calculate weights of different components of capital.
Market Value of common stock=Mc=40*150000=$6,000,000.00
Price od a bond=85% of face value=1000*85%=$850
Market Value of ...
Solution calculates the Weighted Average Cost of Capital in the given case.