a) The Hanover based company, We Know Capital Limited (WKC), has been hired as consultants by a large logistics company. As an employee of WKC, you have been assigned the responsibility of analysing the weighted average cost of capital of the company. The relevant details are as follows: Value of Common Stock $750,000 Value of Preferred Stock $450,000 Value of Debt $1,300,000 Beta 2.49 Dividend Rate for Preferred Stock 8.5% Par Value of Preferred Stock $100 Price of New Preferred Stock $68 Yield To Maturity for Bonds 12% The risk-free rate is currently 4%, the average market return is 12% and the corporate tax rate is 25%. i) Calculate the cost of each capital structure component. 1) Determine the weighted average cost of capital.
a) The Hanover based company, We Know Capital Limited (WKC), has been hired as consultants by a large logistics company. As an employee of WKC, you have been assigned the responsibility of analysing the weighted average cost of capital of the company. The relevant details are as follows: Value of Common Stock $750,000 Value of Preferred Stock $450,000 Value of Debt $1,300,000 Beta 2.49 Dividend Rate for Preferred Stock 8.5% Par Value of Preferred Stock $100 Price of New Preferred Stock $68 Yield To Maturity for Bonds 12% The risk-free rate is currently 4%, the average market return is 12% and the corporate tax rate is 25%. i) Calculate the cost of each capital structure component. 1) Determine the weighted average cost of capital.
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
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Transcribed Image Text:a) The Hanover based company, We Know Capital Limited (WKC), has been hired as
consultants by a large logistics company. As an employee of WKC, you have been assigned
the responsibility of analysing the weighted average cost of capital of the company. The
relevant details are as follows:
Value of Common Stock
$750,000
Value of Preferred Stock
$450,000
Value of Debt
$1,300,000
Beta
2.49
Dividend Rate for Preferred Stock
8.5%
Par Value of Preferred Stock
$100
Price of New Preferred Stock
$68
Yield To Maturity for Bonds
12%
The risk-free rate is currently 4%, the average market return is 12% and the corporate tax
rate is 25%.
i) Calculate the cost of each capital structure component.
ii) Determine the weighted average cost of capital.
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