Kellogg’s CFO is in the process of determining the firm’s WACC and needs to figure out the weights of the various types of capital sources. Accordingly, she starts by collecting information from the balance sheet and the capital markets, and makes up the table shown below: Component Balance Sheet Value Number Outstanding Current Market Price Market Value Debt $150,000,000 150,000 $1,075   Preferred Stock $  45,000,000 1,500,000 $40   Common Stock $180,000,000 4,500,000 $45.57     Corporate tax rate = 30% is Tc   Before tax cost of debt = 7.6%  Rd   Cost of Equity = 11.36% Re   Based upon the above information, calculate the firm’s weighted average cost of capital.

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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Kellogg’s CFO is in the process of determining the firm’s WACC and needs to figure out the weights of the various types of capital sources. Accordingly, she starts by collecting information from the balance sheet and the capital markets, and makes up the table shown below:

Component

Balance
Sheet Value

Number Outstanding

Current Market Price

Market Value

Debt

$150,000,000

150,000

$1,075

 

Preferred Stock

$  45,000,000

1,500,000

$40

 

Common Stock

$180,000,000

4,500,000

$45.57

 

 

Corporate tax rate = 30% is Tc

 

Before tax cost of debt = 7.6%  Rd

 

Cost of Equity = 11.36% Re

 

  1. Based upon the above information, calculate the firm’s weighted average cost of capital.
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