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Weighted average cost of capital for Hamilton Corp

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11/17. Given the following information, calculate the weighted average cost of capital for Hamilton Corp.

Percent of capital structure:

Debt . . . . . . . . . . . . . . .30%
Preferred stock . . . . . . . . . 15
Common equity . . . . . . . . . . 55

please see additional info attached in the file

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Solution Summary

The solution calculates the weighted average cost of capital for Hamilton Corp, given capital structure and data pertaining to bonds (coupon rate, yield to maturity), common equity (dividends, growth rate) , preferred stock (dividends), floatation costs, tax rate etc.

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See attached file

Step 1: Calculate the after tax cost of debt

Marginal Tax rate T = 30% (Corporate Tax Rate)
Pre tax cost of debt= kd= 11.00% (Yield to maturity)
After tax cost of debt= kd(1-T)= 7.700% =(100% -30.%)*11.%

After tax cost of debt is taken as interest payments are deducted as expenses before tax is paid

Step 2: Calculate the cost of ...

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