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

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