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Brook's Window Shields Inc. is trying to calculate its cost of capital for use in a capital budgeting decision. Mr. Glass, the vice president of finance, has given you the following information and has asked you to compute the weighted average cost of capital.
The company currently has outstanding a bond with a 12.2 percent coupon rate and another bond with a 9.5 percent coupon rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield 13.4 percent.
The common stock has a price of
The
Compute the cost of capital for the individual components in the capital structure, and then calculate the weighted average cost of capital (similar to Table 11-1).
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