Given the following information, calculate the weighted average cost of capital for Digital Processing Inc. Percent of capital structure: Preferred stock 20% Common equity 40 Debt 40 Additional information: Corporate tax rate 25% Dividend, preferred $8.50 Dividend, expected common $2.50 Dividend, preferred $105.00 Growth rate 7% Bond yield 9.5 Flotation cost, preferred $3.60 Price, common $75.00 You are required to calculate: 1.Cost of debt (after tax) ? 2 .Cost of preferred stock ? 3.Cost of common equity ? 4.WACC ?
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
Given the following information, calculate the weighted average cost of capital for Digital Processing Inc.
Percent of capital structure:
Common equity 40
Debt 40
Additional information:
Corporate tax rate 25%
Dividend, preferred $8.50
Dividend, expected common $2.50
Dividend, preferred $105.00
Growth rate 7%
Bond yield 9.5
Flotation cost, preferred $3.60
Price, common $75.00
You are required to calculate:
1.Cost of debt (after tax) ?
2 .Cost of preferred stock ?
3.Cost of common equity ?
4.WACC ?
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