Weighted Average Cost of Capital - Copernicus, Inc. and Keepler, Inc.
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Copernicus, Inc. has determined that its target capital structure will be 60% debt, 10% preferred stock, and 30% common stock. As the financial manager, the CFO has informed you that the company's before tax cost of debt is 10%, preferred stock is 14%, and common stock is 16%. In addition, the company's marginal tax rate is 40%. Based on the information provided, calculate the weighted average cost of capital (WACC).
Keepler, Inc. has determined that its target capital structure will be 30% debt, 15% preferred stock, and 55% common stock. Also, the company's provides the following information:
Bond coupon rate 13% Bond yield to maturity 11%
Dividend, expected common $3.00 Dividend, preferred $10.00
Price, common $50.00 Price, preferred $98.00
Growth rate 8%
Corporate tax rate 30%
Based on the information provided, calculate the firm's weighted average cost of capital (WACC).
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This solution is comprised of a detailed explanation to calculate the firm's weighted average cost of capital for Copernicus, Inc. and Keepler, Inc.
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Copernicus, Inc. has determined that its target capital structure will be 60% debt, 10% preferred stock, and 30% common stock. As the financial manager, the CFO has informed you that the company's before tax cost of debt is 10%, preferred stock is 14%, and common stock is 16%. In addition, the company's marginal tax rate is 40%. Based on the information provided, calculate the weighted average cost of capital (WACC).
WACC = WdKd(1 - T) + WpKp + WcKs where Wd is the weight of debt
Kd is the cost of debt
T is the tax rate
Wp is the weight of ...
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