Derrald Corporation has raised $120,000 in equity financing through the issuance

Question

Derrald Corporation has raised $120,000 in equity financing through the issuance of shares. Stockholders expect to earn an average of 15 percent per year on their equity investment in Derrald. In addition, the corporation has issued $75,000 of 12 percent bonds. The corporation has also accumulated $105,000 in earnings that have been retained in the company. Investors expect to earn about 18 percent on the earnings that are retained in the company. Using the weighting procedure discussed in the chapter, calculate Derrald Corporation’s cost of capital. (Ignore taxes in calculating the cost of debt.) Round all percentages calculations to two decimal points. (XX.XX%).

Explanation / Answer

cost of capital =120000/195000*15%+75000/195000*12%

= 9.231% +4.615$

= 13.85 %

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.