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    Weighted (Average) Cost of Capital

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    (Weighted average cost of capital) The target capital structure for QM Industries is 40 percent common stock, 10 percent preferred stock, and 50 percent debt. If the cost of equity for the firm is 18 percent, the cost of preferred stock is 10 percent, the before-tax cost of debt is
    8 percent, and the firm's tax rate is 35 percent, what is QM's weighted average cost of capital?

    (Weighted cost of capital) The capital structure for the Bias Corporation follows. The company plans to maintain its debt structure in the future. If the firm has a 6 percent after-tax cost of debt, a 13.5 percent cost of preferred stock, and a 19 percent cost of common stock, what is the firm's weighted cost of capital?
    CAPITAL STRUCTURE ($000)

    Bonds $1,100
    Preferred stock 250
    Common stock 3,700
    ----------
    $5,050

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    Solution Preview

    12-12A. (Weighted average cost of capital) The target capital structure for QM Industries is 40 percent common stock, 10 percent preferred stock, and 50 percent debt. If the cost of equity for the firm is 18 percent, the cost of preferred stock is 10 percent, the before-tax cost of debt is
    8 percent, and the firm's tax rate is 35 percent, what is QM's weighted average cost of capital?

    Before tax cost of debt= 8%
    After tax cost of debt = Before tax ...

    Solution Summary

    Two questions on weighted costs are answered fully in Excel.

    $2.19

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