United Business Forms Capital Structure Debt 35% Aftertax Cost of Debt 7% Prefer

Question

United Business Forms


















Capital Structure


















Debt 35% Aftertax Cost of Debt 7%


















Preferred Stock 15% Cost of Preferred Stock 10%


















Common Equity 50% Cost of Common Equity 13%
































































Solution:






















Cost (aftertax) Weights Weighted Cost


















Debt (Kd)


















Preferred Stock (Kp)


















Common Equity (Ke)


















Weighted Average Cost of Capital (Ka)



















United Business Forms


















Capital Structure


















Debt 35% Aftertax Cost of Debt 7%


















Preferred Stock 15% Cost of Preferred Stock 10%


















Common Equity 50% Cost of Common Equity 13%
































































Solution:






















Cost (aftertax) Weights Weighted Cost


















Debt (Kd)


















Preferred Stock (Kp)


















Common Equity (Ke)


















Weighted Average Cost of Capital (Ka)

Explanation / Answer

.07*35 + 0.1*15 + 0.13*50 = 10.45% Cost (aftertax) 7% 10% 13% weights 35% 15% 50% Weighted Cost 2.45% 1.50% 6.5% 10.45%

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