D3) Finance Killer burgers capital structure consist of 30% debt 20% preferred stock and 50% common stock if killer raises new capital it's after-tax cost of debt will be 2.5% its cost of preferred stock will be 9% its cost of retained earnings will be 12.8% and it's cost of new common equity will be 13.8% killer must raise $180,000 if management expects the firm to generate $85,000 and retain earnings this year what is killers marginal cost of capital to raise the needed funds round your answer to two decimal places places
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
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