Equity = 6,300,000 Debt = 3,920,000 Preferred stock = 6,000,000 Cost of eqiuty = 10.91% cost of debt 8.29% Cost of preffered stock = 7.5% 1. If The company will contract a new loan in the sum of $2,000,000 that is secured by machinery and the loan has an interest rate of 6 percent. Should this loan portion be included to calculate the weighted average cost of capital (WACC) for the company? give reasons for your answer. 2. Calculate the WACC for the company.
Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
- Equity = 6,300,000
- Debt = 3,920,000
Preferred stock = 6,000,000- Cost of eqiuty = 10.91%
- cost of debt 8.29%
- Cost of preffered stock = 7.5%
1. If The company will contract a new loan in the sum of $2,000,000 that is secured by machinery and the loan has an interest rate of 6 percent. Should this loan portion be included to calculate the weighted average cost of capital (WACC) for the company? give reasons for your answer.
2. Calculate the WACC for the company.
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