Brook s Window Shields Incorporated is trying to calculate its cost of capital for use in a
Fantastic news! We've Found the answer you've been seeking!
Question:
Brooks Window Shields Incorporated is trying to calculate its cost of capital for use in a capital budgeting decision. Mr Glass, the vice president of finance, has given you the following information and has asked you to compute the weighted average cost of capital.
The company currently has outstanding a bond with a percent coupon rate and another bond with a percent coupon rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield percent.
The common stock has a price of $ and an expected dividend D
of $ per share. The firms historical growth rate of earnings and dividends per share has been percent, but security analysts on Wall Street expect this growth to slow to percent in future years.
The preferred stock is selling at $ per share and carries a dividend of $ per share. The corporate tax rate is percent. The flotation cost is percent of the selling price for preferred stock. The optimum capital structure is percent debt, percent preferred stock, and percent common equity in the form of retained earnings.
Compute the cost of capital for the individual components in the capital structure.
Note: Do not round intermediate calculations. Input your answers as a percent rounded to decimal places.
Calculate the weighted cost of each source of capital and the weighted average cost of capital.
Note: Do not round intermediate calculations. Input your answers as a percent rounded to decimal places.
PrevQuestion of Total of
Related Book For
Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
Posted Date: