o Coal Company has estimated the costs of debt and equity capital (with bankruptcy and agency costs) for various proportions of debt in its capital structure. The company’s income tax rate is 40 percent. Fill in the missing entries in the table. Round your answers to two decimal places. Debt ratio [B/B+E] Pre-tax cost of debt (kd) Cost of equity (ke) Weighted average cost of capital (ka) 0.00 ——— % 11.50% 0.15 % 12.20 10.91 0.30 7.00 14.00 % 0.45 % 16.00 11.23
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
Colorado Coal Company has estimated the costs of debt and equity capital (with bankruptcy and agency costs) for various proportions of debt in its capital structure. The company’s income tax rate is 40 percent.
- Fill in the missing entries in the table. Round your answers to two decimal places.
Debt ratio [B/B+E] Pre-tax cost of debt (kd) Cost of equity (ke)Weighted average cost of capital (ka) 0.00 ——— % 11.50% 0.15 % 12.20 10.91 0.30 7.00 14.00 % 0.45 % 16.00 11.23 13.00 17.70 11.76 - Use the completed table to determine the capital structure (that is, debt ratio) that minimizes the firm’s weighted average cost of capital.
% debt and % equity minimizes the firm’s weighted cost of capital.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
