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Weighted Average Cost of Capital: Adams Company

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The Adams company cost of common equity is 16 percent, its before tax cost of debt is 13 percent, and its marginal tax rate is 40 percent. The stock sells at book value. Using the following balance sheet, calculate the Adams' Weighted Average Cost of Capital.

Assets:

cash $120
accounts receivable $240
inventories $360
plant and equipment, net $2,160

Total Assets $2,880

Liabilities and Equity:

long term debt $1,152
common equity $1,728

Total Liabilities and Equity $2,880

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Provides steps necessary to calculate weighted average cost of capital.

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