Given the following information, calculate the weighted average cost of capital for Digital Processing Inc. Percent of capital structure: Preferred stock Common equity Debt 20% 40 40 Additional information: |Corporate tax rate Dividend, preferred Dividend, expected common Dividend, preferred Growth rate 25% $8.50 $2.50 $105.00 7% Bond yield Flotation cost, preferred Price, common 9.5 $3.60 $75.00 You are required to calculate: a. Cost of debt (after tax) b. Cost of preferred stock c. Cost of common equity d. WACC

Given the following information, calculate the weighted average cost of capital for Digital Processing Inc. Percent of capital structure: Preferred stock Common equity Debt 20% 40 40 Additional information: |Corporate tax rate Dividend, preferred Dividend, expected common Dividend, preferred Growth rate 25% $8.50 $2.50 $105.00 7% Bond yield Flotation cost, preferred Price, common 9.5 $3.60 $75.00 You are required to calculate: a. Cost of debt (after tax) b. Cost of preferred stock c. Cost of common equity d. WACC

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 1Q: Define each of the following terms: Weighted average cost of capital, WACC; after-tax cost of debt,...

See similar textbooks

Similar questions

Define each of the following terms: Weighted average cost of capital, WACC; after-tax cost of debt, rd(1 – T); after-tax cost of short-term debt, rstd(1 – T) Cost of preferred stock, rps; cost of common equity (or cost of common stock), rs Target capital structure Flotation cost, F; cost of new external common equity, re
Brower Co. is considering the following alternative financing plans: Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that income before bond interest and income tax is 2,000,000.
Suppose Dexter, Inc.'s target capital structure is as follows:wd = 0.45, wps = 0.05, and wee = 0.50Its before-tax cost of debt is 8%, its cost of equity is 12%, its cost of preferred stock is8.4%, and its marginal tax rate is 40%. Calculate Dexter's WACC. Here, w d = percentage of debt in the capital structurewps = percentage of preferred stock in the capital structurewee= percentage of common stock in the capital structure
Given the following information, calculate the weighted average cost of capital for Digital Processing Inc. Percent of capital structure: Preferred stock 20% Common equity 40 Debt 40 Additional information: Corporate tax rate 25% Dividend, preferred $8.50 Dividend, expected common $2.50 Dividend, preferred $105.00 Growth rate 7% Bond yield 9.5 Flotation cost, preferred $3.60 Price, common $75.00 You are required to calculate: 1.Cost of debt (after tax) ? 2 .Cost of preferred stock ? 3.Cost of common equity ? 4.WACC ?
The company capital structure consist of debt 340000 @ 4.05%, common stock 40% of preferred stock @ 9.09% and preferred stock 400000 @ 19.50%, calculate company’s weighted average cost of capital. Select one: a. 12.50% b. 11.79% c. 14.98% d. None of the option e. 13.15%
Webster Company has compiled the information shown in the following table: Source of Capital Book Value Market Value After-Tax Cost Long-Term Debt $4,000,000 $4,200,000 8% Preferred Stock $40,000 $56,000 13% Common Stock Equity $1,060,000 $4,282,000 18% Totals $5,100,000 $8,538,000 A. Calculate the weighted average cost of capital using book value weights. _____%?B. Caclulate the weighted average cost of capital using market value weights. _____%?C. Compare the answers obtained in parts a and b. Explain the differences.
WRF ltd. is reviewing three possible capital structures, I, J and K, shown in the following table. Assume a40% tax rate.Capital component Structure I Structure J Structure KCommon stock (Required return) 10,000 shares (8%) 7,500 shares (10%) 5,000 shares (16%)Preferred stock (Annual dividend rate) $60,000 (20%) $60,000 (20%) $60,000 (20%)Long-term debt (Coupon rate) $40,000 (10%) $140,000 (13%) $240,000 (18%) Using appropriate measure, describe the level of financial risk of capital structure I, J & K. Find indifference points between capital structures J & K. Find indifference point between capital structures I & J.
Weighted Average Cost of CapitalGardner, Inc., plans to finance its expansion by raising the needed investment capital from the following sources in the indicated proportions and respective capital cost rates: Capital Cost Source Proportion Rate Bonds 40% 12% Preferred stock 20% 8% Common stock 30% 11% Retained earnings 10% 8% 100% Calculate the weighted average cost of capital.Round answers to one decimal place. For example, 0.457 = 45.7%. Weighted Average Cost of Capital Bonds Answer Preferred stock Answer Common stock Answer Retained earnings Answer Answer
Weighted Average Cost of CapitalAustin, Inc. plans to finance its expansion by raising the needed investment capital from the following sources in the indicated proportions and respective capital cost rates. Capital Cost Source Proportion Rate Bonds 45% 11% Preferred stock 10% 9% Common stock 25% 15% Retained earnings 20% 13% 100% Calculate the weighted average cost of capital.Round answers to one decimal place. For example, 0.457 = 45.7%. Weighted Average Cost of Capital Bonds Answer Preferred stock Answer Common stock Answer Retained earnings Answer Answer
Assume the following data for U&P Company: Debt (D) = $100 million; Equity (E) = $300 million; rD = 6%; rE = 12%; and TC = 30%. Calculate the after-tax weighted average cost of capital (WACC): Multiple Choice A) 10.5% B) 10.05% C) 15% D) 9.45%
Question: Calculate weighted average cost of capital for Puppet corporation. Assume the funds are internally generated. Percent of capital structure: Debt - 54% Common Equity - 32% Preferred stock - 14% Additional information: Bond coupon rate - 9% Bond yield - 9% Bond flotation coat - 1% Dividend, common(just paid) - $1.30 Pride, common - $ 37 Dividend, preferred - 8% price. preferred - $37 Flotation cost, preferred - $1.79 Flotation cost ,common - 8% Corporate growth rate - 10% Corporate tax rate - 35%
General Talc Mines has compiled the following data regarding the market value and cost of the specific sources of capital. Source of Capital Before-Tax Cost Long-term debt 8% Common stock equity 19 Market price per share of common stock $50 (7,200 shares outstanding) Market value of long-term debt is $980 per bond (150 bonds issued at $1,000 par) Tax rate is 20%. What is the weighted average cost of capital using market value weights?