Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Aa.5
![3) Using the data below, calculate the WACC (weighted average cost of capital). You are provided with 2 examples (first 2 rows) - and the amount of capital the firm has from debt and from equity - notice that the value of the firm is simply those individual values
added together supply the answer for the value of the firm in the third row. Use the "values" (in columns 1, 3, and5) to calculate the weights for debt and for equity along with the rates (adjusted for taxes if appropriate) to calculate the answer for the WACC in
the third row. It is best to verify that the answers to the first 2 rows (especially the second row) make sense before proceeding.
Value of Debt
0 -
6
21
Rate
9
15
Value
of Stock
20
15.727
7.857
Rate
12
13.2
16.8
Value
of Firm
20
21.727
28.857
Overall Cost (WACC)
12%
11.05%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ffe43c24a-ac0f-4296-b77b-ff29e7e68f7e%2F52c18675-4012-4d59-9dcd-d2105b86d56e%2Fopw4xna_processed.png&w=3840&q=75)
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