Crypton Electronics has a capital structure consisting of 44% common stock and 5

Question

Crypton Electronics has a capital structure consisting of 44% common stock and 56% debt. A debt issue of $1000 par value, 5.7% bonds that mature in 15 years and pay annual interest will sell for $972. Common stock of the firm is currently selling for $30.09 per share and the firm expects to pay a $2.27 dividend next year. Dividends have grown at the rate of 4.9% per year and are expected to continue to do so for the foreseeable future. What is Crypton's cost of capital where the firm's tax rate is 30%? Crypton's cost of capital is ?% round to three decimal places Please show how to calculate

Explanation / Answer

Crypton Electronics has a capital structure consisting of 44% common stock and 56% debt. A debt issue of $1,000 par value, 6.3% bonds that mature in 15 years and play annual interest will sell for $970. Common stock of the firm is currently selling for $29.95 per share and the firm expects to pay a $2.32 dividend next year. Dividends grown at the rate of 5.3% per year and are expected to continue to do so for the foreseeable future

What is Crypton's cost of capital where the firm's tax rate is 30%? S

a) source of capital Common stock----44.00%

Debt Proportion of capital----- 56.00%

Weighted average cost of capital = Cost of capital   (b) 5.30% 4.41%

Total cost ( a x b) =2.33% 2.47%= 4.80%

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