Deep Hollow Markets has a target capital structure of 30 percent debt, 10 percen

Question

Deep Hollow Markets has a target capital structure of 30 percent debt, 10 percent preferred stock, and 60 percent common stock. The flotation costs are 10.5 percent for common stock, 8.2 percent for preferred stock, and 5.8 percent for debt. The corporate tax rate is 35 percent. What is the weighted average flotation cost?

Deep Hollow Markets has a target capital structure of 30 percent debt, 10 percent preferred stock, and 60 percent common stock. The flotation costs are 10.5 percent for common stock, 8.2 percent for preferred stock, and 5.8 percent for debt. The corporate tax rate is 35 percent. What is the weighted average flotation cost?

Explanation / Answer

weighted average flotation cost=weight of debt*floatation cost of debt+Weight of preferred stock*floatation cost of preferred stock+Weight of common stock*floatation cost of common stock=0.30*5.8+0.10*8.2+0.60*10.5=8.86%

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