Given the following information, calculate the weighted average cost of capital for Puppet Corporation. Percent of capital
Question:
Given the following information, calculate the weighted average cost of capital for Puppet Corporation.
Percent of capital structure:
Debt..............................................55%
Preferred stock ..............................5
Common equity ...........................40
Additional information:
Bond coupon rate ................... . .8.5%
Bond yield ............. .. .. . ......... .. . .7%
Bond flotation cost ................. . .. . .2%
Dividend, expected common ......$1.50
Price, common ...................... . .$30.00
Dividend, preferred ................ .. .. . .5%
Flotation cost, preferred .......... . .. . .3%
Flotation cost, common .....................4%
Corporate growth rate........................6%
Corporate tax rate..............................35%
a. Calculate the cost of capital assuming use of internally generated funds.
b. Calculate the cost of capital assuming use of externally generated funds.
c. Why is there a difference? Why does only common equity change?
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
Step by Step Answer:
a Internally Generated funds Cost Weighted after tax Weights Cost Debt K d 464 55 255 Preferred stoc...View the full answer
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
