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    Weighted average cost of capital (WACC) - Global Technology

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    Global Technology's capital structure is as follows:
    Debt 35%
    Preferred Stock 15
    Common Equity 50

    The after-tax cost of debt is 6.5 percent; the cost of preferred stock is 10 percent; 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 similar to Table 11-1 on page 313

    Figure 11-1 Cost of capital curve

    - ecampus.phoenix.edu.jpg

    Capital Asset Pricing Model
    Assume that Rf = 5 percent and Km = 10.5 percent. Compute Kj for the following betas, using Formula 11A-2.
    a. 0.6
    b. 1.3
    c. 1.9

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    Solution Preview

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    Global Technolosy's capital structure is as follows:
    Debt 35%
    Preferred Stock 15
    Common Equity 50

    The after-tax cost of debt is 6.5 percent; the cost of preferred stock is 10 percent; 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 ...

    Solution Summary

    The solution explains how to calculate the weighted average cost of capital (WACC) for Global Technology

    $2.19