The Expanding Capital Corporation has a current capital structure of $15 million in secured bonds paying 6.5% annual interest, $10 million in preferred stock with a par value of $50 per share and an annual dividend of $3.80 per share, and common stock with a book value of $75 million.  It is about to issue new debentures in the amount of $10 million paying 7.5% annual interest.  Its CFO says its marginal tax rate is 30% and its cost of common equity capital is 12%.  Calculate the company's Weighted Average Costs of Capital for the following:

1. Before the new bond issue
2. After the new bond issue

Answer rating: 100% (QA)

To calculate the Weighted Average Cost of Capital WACC we need to determine the cost of each component of the capital structure and its proportion in ... View the full answer