A fitness equipment manufacturer is capitalized with long-term debt, preferred stock and common stock. The amountand cost of each capital source is in the table below. The cost of debt is the after-tax cost.What is the firm's weighted average cost of capital? (round to two decimal places)Amount ($)Cost (%)Long-term debtPreferred stock800,0004%350,0005%Common stock3,900,0008%5,050,000Total

Question
Asked Dec 10, 2019
1 views

Please show how to get the answer in Excel.

A fitness equipment manufacturer is capitalized with long-term debt, preferred stock and common stock. The amount
and cost of each capital source is in the table below. The cost of debt is the after-tax cost.
What is the firm's weighted average cost of capital? (round to two decimal places)
Amount ($)
Cost (%)
Long-term debt
Preferred stock
800,000
4%
350,000
5%
Common stock
3,900,000
8%
5,050,000
Total
help_outline

Image Transcriptionclose

A fitness equipment manufacturer is capitalized with long-term debt, preferred stock and common stock. The amount and cost of each capital source is in the table below. The cost of debt is the after-tax cost. What is the firm's weighted average cost of capital? (round to two decimal places) Amount ($) Cost (%) Long-term debt Preferred stock 800,000 4% 350,000 5% Common stock 3,900,000 8% 5,050,000 Total

fullscreen
check_circle

Expert Answer

Step 1

The average cost of capital (after taxes) that a company expects to pay for raising funds from external or other sources is known as weighted average cost of capital.

Step 2

Given:

help_outline

Image Transcriptionclose

After-tax cost (%) Amount (S) 800,000 350,000 3,900,000 5,050,000 Sources Lon-term debt Preferred stock Common stock 4% 5% 8% Total

fullscreen
Step 3

Calculations of WACC using exce...

help_outline

Image Transcriptionclose

After-tax cost (%)(C) Amount (B) 800,000 Weights (D) Sources (A) 26 Lon-term debt 27 Preferred stock (C) *(D) 25 4% 0.158415842 0.006336634 0.003465347 350,000 5% 0.069306931 28 Common stock 3,900,000 8% 0.772277228 0.061782178 0.071584158 7.158415842 29 Total 5,050,000 30 WACC

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Related Finance Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Problem 13-11 MIRR (LG13-4) Compute the MIRR statistic for Project I if the appropriate cost of capi...

A: Hence, Total amount of Future value of the cash inflows of year 1, year 2, year 3 and year 4 is $16,...

question_answer

Q: Which bond risk components interact to make immunization successful? Explain how these bond risk com...

A: Bond’s duration is adjusted to match its investment horizon. Bond’s duration is the average life of ...

question_answer

Q: Suppose your firm is considering investing in a project with the cash flows shown below, that the re...

A: Calculation of Payback Period:The payback period is 2.70 years.The project should be Rejected since ...

question_answer

Q: Project 1 requires an original investment of $84,200. The project will yield cash flows of $19,000 p...

A: Part a:We need to determine the net present value of project 1 over 5 years life with residual value...

question_answer

Q: Need help

A: The formula to calculate required return is given below:

question_answer

Q: Zappy Inc. designs a new financial instrument that called the SafetyNet. This instrument gives the h...

A: The fair market price can be calculated with the help of taking the difference between present value...

question_answer

Q: Finch Delivery is a small company that transports business packages between New York and Chicago. It...

A: Calculate the net present value and present value index as follows:For Car:

question_answer

Q: A credit card bill shows a balance due of $2500 with a monthly interest rate of 1.53%.  What is the ...

A: The formula to calculate effective annual rate is given below:

question_answer

Q: The free cash flow to the firm is reported as $300 million. The interest expense to the firm is $30 ...

A: Information povided