A. The capital for investment of Executive Consultants, Inc. is as follows: Sources of capital Capital Debt (corporate bonds) $4,100,000 Prefferent shares $2,200,000 Common shares $2,800,000 B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond. C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share. D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23. E. Executive Consultants, Inc. has a tax liability of 35%. Problems: You must submit the procedure and all the calculations. 1.  Calculate the cost of equity capital (common shares). 2. Determine the weighted average cost of capital (WACC) for the firm.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Consider the following facts to solve problems 1 through 5.

A. The capital for investment of Executive Consultants, Inc. is as follows:

Sources of capital

Capital

Debt (corporate bonds)

$4,100,000

Prefferent shares

$2,200,000

Common shares

$2,800,000

B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond.
C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share.
D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23.
E. Executive Consultants, Inc. has a tax liability of 35%.
Problems:
You must submit the procedure and all the calculations.


1.  Calculate the cost of equity capital (common shares).
2. Determine the weighted average cost of capital (WACC) for the firm.

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