With the cost of the new common stock, calculated above, and the pretax informat
ID: 2635148 • Letter: W
Question
With the cost of the new common stock, calculated above, and the pretax information provided in the chart below calculate the company's new weighted average cost of capital -given the marginal tax rate is 34 percent.
Decision Works (in $000s)
Component
Value
Cost of Capital
Bonds
$3,000,000
7.5%
Preferred stock
$1,000,000
15.0%
Common stock
$4,000,000
To be calculated
Total
$8,000,000
Component
Value
Cost of Capital
Bonds
$3,000,000
7.5%
Preferred stock
$1,000,000
15.0%
Common stock
$4,000,000
To be calculated
Total
$8,000,000
Explanation / Answer
total value = 8000000
WACC = (3/8) * 7.5% * (1-0.34) + (1/8) * 15% + (4/8) * cost of common stock
value of common stock is missing or the information through which it can be calculated is missing
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