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Weighted Average Cost of Capital

Consider the following data:

Percent of capital structure:
Debt 30%
Preferred stock 15
Common equity 55
Additional 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
Flotation cost, preferred $5.50
Growth rate 8%
Corporate tax rate 30%

Calculate the weighted average cost of capital.

Solution Preview

The weighted average cost of capital is calculated as
WACC = Proportion of debt X after tax cost of debt + proportion of preferred stock X cost of preferred stock + proportion of common stock X cost of common stock
The proportions are given to us as
Debt = 30%
Preferred Stock = 15%
Common Stock = 55%
Let us calculate the ...

Solution Summary

The solution explains how to calculate the Weighted Average Cost of Capital