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weighted average cost of capital

Jersey devil inc is estimating its WACC. its target capital structure is 20% debt, 20% preferred stock, and 60% equity. its bonds have a 12% coupon, paid semiannually, a current maturity of 20 yrs, and sell for $950. the firm could sell at par $100 preferred stock which pays a 12% annual dividend, but flotation costs of 5% would be incurred. Jersey Devil is a constant growth firm that just pais a dividend of $2.00 on its common stock selling for $27.00 per share. Jersey Devils constant growth rate is 8%. the firm is not expected to have to issue new common stock for its upcoming budget and therefore will rely on retained earnings for the 60% in equity that it will need. the firm marginal tax rate is 40%.
What is the firms after tax cost of debt?
what is the firms cost of preferred stock?
what is the firms cost of common stock?
what is the firms weighted average cost of capital?

Solution Summary

Determine weighted average cost of capital.

$2.19