Weighted average cost of capital (LO1) Given the following information, calculat

Question

Weighted average cost of capital (LO1) Given the following information, calculate the weighted average cost of capital for Hamilton Corp. Line up the calculations in the order shown in Table 11-1. Percent of capital structure: Debt 30% Preferred stock 15 Common equity 55 Additional information: Bond coupon rate 13% Bond yield to maturity 11% Dividend, expected common $ 3.00 Dividend, preferred $10.00 Price, common $50.00 Price, preferred $98.00 Flotation cost, preferred $ 5.50 Growth rate 8% Corporate tax rate 30%

Explanation / Answer

Common stock 70 = 3.5/(r-6%) r=11.00% Preferred stock 102 -3.2= 9/rp rp =9.11% WACC = 10%*9.11% + 60%*11% + 30%*10%*(1-34%) =9.49%

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