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....
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
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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?
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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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F98459a87-75de-4da7-b1ea-9e895a3ca316%2F91ef5561-da67-462b-a550-f2d815ff9616%2Fcz2otk_processed.jpeg&w=3840&q=75)
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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
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21. Given the following information, calc...
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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%
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Business / Accounting / Q&A Library / 21. Given the followin...
21. Given the following information, calc...
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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
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