Weigh average cost of capital Crypton Electronics has a capital structure consis

Question

Weigh average cost of capital

Crypton Electronics has a capital structure consisting of 35% common stock and 65% debt. A debt issue of $ 1,000.00 par value. 6.2% bonds that mature in 15 years and pay annual interest will sell for $972. Common stock of the firm is currently selling for 29.77 per share and the firm expects to pay a $2.35 dividend next year. Dividends have grown at the rate of 5.2% per year and are expected to continue to do so for the foreseeable future. What is Crypton's cost of capital whre the firm's tax rate is 30%.

Explanation / Answer

cost of debt = (62+(-972+1000)/15)/(1972/2) = 6.47 %

cost of capital = 2.35/29.77 + 0.052 = 13.09 %

WACC = 0.35*6.47*(1-0.3) + 0.65*13.09 = 10.09%

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