Weighted average cost of​ capital)The target capital structure for Jowers Manufacturing is 50 percent common​ stock, 15 percent preferred​ stock, and 35 percent debt. If the cost of common equity for the firm is 20 percent, the cost of preferred stock is 12 ​percent, and the​ before-tax cost of debt is 10 ​percent, what is​ Jowers' cost of​ capital? The​ firm's tax rate is 34 percent.Jowers' cost of capital is     ​%. ​(Round to three decimal​ places.)

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Asked Nov 18, 2019
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Weighted average cost of​ capital)

The target capital structure for Jowers Manufacturing is 50 percent common​ stock, 15 percent preferred​ stock, and 35 percent debt. If the cost of common equity for the firm is 20 percent, the cost of preferred stock is 12 ​percent, and the​ before-tax cost of debt is 10 ​percent, what is​ Jowers' cost of​ capital? The​ firm's tax rate is 34 percent.

Jowers' cost of capital is     ​%. ​(Round to three decimal​ places.)

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Expert Answer

Step 1

Calculation of Weighted Average Cost of​  Capital:

The weighted average cost of​  capital is 14.11%.

Excel Spreadsheet:

...
А
В
с
D
Return
1
Weight
35%
Rate
Debt
10%
2.31%
3 Common Stock
4 Preferred Stock
5 Weighted Average Cost of Capital 14.11%
50%
20%
10.00%
15%
12%
1.80%
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А В с D Return 1 Weight 35% Rate Debt 10% 2.31% 3 Common Stock 4 Preferred Stock 5 Weighted Average Cost of Capital 14.11% 50% 20% 10.00% 15% 12% 1.80%

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