21. Given the following information, calculate the weighted average cost of capital for Hamilton Corp. Line up the calculations in the order shown in Table 11-1. Percent of capital structure: Debt.... Preferred stock.... Common equity..... 30% 15 55 Additional information: Bond coupon rate.... Bond yield to maturity.... Dividend, expected common..... Dividend, preferred... Price, common.... Price, preferred... Flotation cost, preferred... Growth rate.... 13% 11% $3.00 $50.00 $98.00 $5.50 8% 30% Corporate tax rate....

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
100%

How are the weights calculated in this answer? How does one calculate the weights and weighted cost for each item in the table? What are the steps to arrive at the answer?

2:19
scribd.com
= S SCRIBD
Search
Q
Download Now
21. Given the following information, calculate the weighted average cost of capital for
Hamilton Corp. Line up the calculations in the order shown in Table 11-1.
Percent of capital structure:
Debt...
Preferred stock..
Common equity.....
30%
15
55
Additional information:
Bond coupon rate.....
Bond yield to maturity...
Dividend, expected common....
Dividend, preferred..
Price, common.
Price, preferred...
Flotation cost, preferred...
Growth rate...
Corporate tax rate..
13%
11%
$3.00
$10.00
$50.00
$98.00
$5.50
8%
30%
S11-18
Transcribed Image Text:2:19 scribd.com = S SCRIBD Search Q Download Now 21. Given the following information, calculate the weighted average cost of capital for Hamilton Corp. Line up the calculations in the order shown in Table 11-1. Percent of capital structure: Debt... Preferred stock.. Common equity..... 30% 15 55 Additional information: Bond coupon rate..... Bond yield to maturity... Dividend, expected common.... Dividend, preferred.. Price, common. Price, preferred... Flotation cost, preferred... Growth rate... Corporate tax rate.. 13% 11% $3.00 $10.00 $50.00 $98.00 $5.50 8% 30% S11-18
3:10
ull LTE 04
Done
A bartleby.com
AA
= bartleby
E Q&A
Business / Accounting / Q&A Library / 21. Given the followin...
21. Given the following information, calc...
Get live help whenever you
Try bartleby
tutor today
need from online tutors!
Weighted Average Cost of Capital is a market value-
weighted average of the costs of each type of capital a
firm uses for financing.
Step 2
Yield (1 – T)
11% (1 – .30)
11% (.70)
Kd
||
7.7%
Dp/ (Pp - F)
$10 / ($98 – 5.5) = $10 / $92.5 = 10.81%
Kp
(D1/ Po) + g
($3 / $50) + 8% = 6% + 8% = 14%
Ke
II
Cost
Weighted
(after tax) Weights
Cost
Debt (Ka) ..
Preferred stock (Kp).
Common equity (Ke)
(retained earnings).
Weighted average cost
of capital (Ka) ..
7.7%
0.30
2.31%
10.81%
0.15
1.62%
14%
0.55
7.7%
11.63%
Privacy - Terms
Transcribed Image Text:3:10 ull LTE 04 Done A bartleby.com AA = bartleby E Q&A Business / Accounting / Q&A Library / 21. Given the followin... 21. Given the following information, calc... Get live help whenever you Try bartleby tutor today need from online tutors! Weighted Average Cost of Capital is a market value- weighted average of the costs of each type of capital a firm uses for financing. Step 2 Yield (1 – T) 11% (1 – .30) 11% (.70) Kd || 7.7% Dp/ (Pp - F) $10 / ($98 – 5.5) = $10 / $92.5 = 10.81% Kp (D1/ Po) + g ($3 / $50) + 8% = 6% + 8% = 14% Ke II Cost Weighted (after tax) Weights Cost Debt (Ka) .. Preferred stock (Kp). Common equity (Ke) (retained earnings). Weighted average cost of capital (Ka) .. 7.7% 0.30 2.31% 10.81% 0.15 1.62% 14% 0.55 7.7% 11.63% Privacy - Terms
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Cost classification
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education