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    Weighted average cost of capital (WACC) for Global Technology

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    These 2 questions need the attached Table 11-1.

    Global Technology's capital structure is as follows :
    Preffered stock------------15
    Common Equity-----------50

    The aftertax cost of debt is 6.5%; the cost of preferred stock is 10%; and the cost of common equity (in the form of retained earnings) is 13.5 percent.

    Calculate Global Technology's weighted average cost of capital in a manner smiliar to table 11-1

    As an alternative to the capital structure shown above for GlobalTechnology, an outside consultant has suggested the following modifications.
    Preferred stock-----------5
    Common equity---------35

    Under this new and more debt-oriented arrangement, the after tax cost of debt is 8.8%, the cost of preferred stock is 11%, and the cost of common equity(in terms of retained earnings)is 15.6%.

    Calculate Global's weighted average cost of capital in each case in a manner smilar to table 11-1.

    Which capital structure should be chosen: the old one from the first problem or the consultant's?

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