National Corporation finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent common stock. · The company can issue bonds at a yield to maturity of 8.4 percent. · The cost of preferred stock is 9 percent. · The risk-free rate is 6.57 percent. · The market risk premium is 5 percent. · National Corporation’ beta is equal to 1.3. · Assume that the firm will be able to use retained earnings to fund the equity portion of its capital budget. · The company’s tax rate is 30 percent. What is the company’s weighted average cost of capital (WACC)?

National Corporation finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent common stock. · The company can issue bonds at a yield to maturity of 8.4 percent. · The cost of preferred stock is 9 percent. · The risk-free rate is 6.57 percent. · The market risk premium is 5 percent. · National Corporation’ beta is equal to 1.3. · Assume that the firm will be able to use retained earnings to fund the equity portion of its capital budget. · The company’s tax rate is 30 percent. What is the company’s weighted average cost of capital (WACC)?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 15PROB

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