The Alabama Power Company has the following capital structure:

 

Debt: 50000 bonds, each with a face value of $100, annual coupon of 8 percent and a current price of 120. The bonds were issued 10 years ago with an original  maturity of 30 years.

 

Common Stock: 100,000 shares at a price of $75 per share. The dividend per share (D1) is $5 and a growth rate of 10 percent. 

 

Preferred Stock: 25,000 shares at a price of $50 per share and a dividend of $3.50 per share

 

1. What is the cost of debt capital? Common stock? Preferred stock?

2.  What is the weighted average cost of capital assuming a tax rate of 30 percent?

Answer rating: 100% (QA)

To calculate the cost of capital for each component we need to consider the specific characteristics of each source of financing 1 Cost of Debt Capita... View the full answer