Weighted average cost of capital
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A firm has determined its cost of each source of capital and optimal capital structure, which is composed of the following sources and target market value proportions:
Target market
Source of capital proportions After tax cost
______________________________________________________
Long term debt 40% 6%
Preferred stock 10 11
Common stock equity 50 15
The weighted average cost of capital is
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The solution explains how to calculate the weighted average cost of capital.
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