Question 3 L a) The Manchester based company. We Know Capital Limited (WIC), has been hired as consultants by a large ompany. As an employee of WKC, you have been assigned the responsibility of analysing the weighted average apital of the company. The relevant details are as follows: Value of Common Stock $1,000,000 Value of Preferred Stock $400,000 Value of Debt $600,000 Beta 2.18 Dividend Rate for Preferred Stock 4.5% Par Value of Preferred Stock $90 Price of New Preferred Stock $50 Vield To Maturity for Bonds 7% The risk-free rate is currently 4%, the average market return is 12% and the corporate tax rate is 25% Calculate the cost of each capital structure component.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Question 3
a) The Manchester based company, We Know Capital Limited (WKC), has been hired as consultants by a large logistics
company. As an employee of WKC, you have been assigned the responsibility of analysing the weighted average cost of
capital of the company. The relevant details are as follows:
Value of Common Stock
$1,000,000
Value of Preferred Stock
$400,000
Value of Debt
$600,000
Beta
2.18
Dividend Rate for Preferred Stock
4.5%
Par Value of Preferred Stock
$90
Price of New Preferred Stock
$50
Vield To Maturity for Bonds
7%
The risk-free rate is
currently 4%, the average market return is 12% and the corporate tax rate is 25%.
Calculate the cost of each capital structure component.
Determine the weighted average cost of capital.
0
Transcribed Image Text:Question 3 a) The Manchester based company, We Know Capital Limited (WKC), has been hired as consultants by a large logistics company. As an employee of WKC, you have been assigned the responsibility of analysing the weighted average cost of capital of the company. The relevant details are as follows: Value of Common Stock $1,000,000 Value of Preferred Stock $400,000 Value of Debt $600,000 Beta 2.18 Dividend Rate for Preferred Stock 4.5% Par Value of Preferred Stock $90 Price of New Preferred Stock $50 Vield To Maturity for Bonds 7% The risk-free rate is currently 4%, the average market return is 12% and the corporate tax rate is 25%. Calculate the cost of each capital structure component. Determine the weighted average cost of capital. 0
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