a) The capital structure for the GEN-Z Berhad is provided here: Capital structure RM’000 Bond 4,000 Preferred Stock 3,000 Common Stock 13,000 The firm is in a 25% tax bracket and plans to maintain its capital structure in the future. If the firm has a 7% before-tax cost debt, a 12% cost of preferred stock, and a 16% cost of common stock, what is the firm’s weighted average cost of capital (WACC)? b) Are preferred stocks a smart investment choice compared to common stocks? Whyor why not?
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
QUESTION 1
a) The capital structure for the GEN-Z Berhad is provided here:
|
Capital structure |
RM’000 |
|
Bond |
4,000 |
|
|
3,000 |
|
Common Stock |
13,000 |
The firm is in a 25% tax bracket and plans to maintain its capital structure in the future. If the firm has a 7% before-tax cost debt, a 12% cost of preferred stock, and a 16% cost of common stock, what is the firm’s weighted average cost of capital (WACC)?
b) Are preferred stocks a smart investment choice compared to common stocks? Whyor why not?
Note: question a,b clear ans no
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