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 :
_______________________
Debt------------------------35%
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.
______________________
Debt----------------------60%
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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