Source Proportion Rate Bonds 45% 11% Preferred stock 10% 9% Common stock 25% 15% Retained earnings 20% 13% 100%
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Weighted Average Cost of Capital
Austin, Inc. plans to finance its expansion by raising the needed investment capital from the following sources in the indicated proportions and respective capital cost rates.
| Capital Cost | ||
|---|---|---|
| Source | Proportion | Rate |
| Bonds | 45% | 11% |
| 10% | 9% | |
| Common stock | 25% | 15% |
| 20% | 13% | |
| 100% |
Calculate the weighted average cost of capital.
Round answers to one decimal place. For example, 0.457 = 45.7%.
| Weighted Average | |
|---|---|
| Cost of Capital | |
| Bonds | Answer |
| Preferred stock | Answer |
| Common stock | Answer |
| Retained earnings | Answer |
| Answer |
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- Consider the following data for the firms Acme and Apex: Acme Apex Required: Equity Debt ($ million) ($ million) 210 1,050 105 350 ROC Cost of Capital (*) (%) 17% 9% 15% 10% a-1. Calculate the economic value added for Acme and Apex. a-2. Which firm has the higher economic value added? b-1. Calculate the economic value added per dollar of invested capital for Acme and Apex. b-2. Which firm has the higher economic value added per dollar of invested capital? Answer is not complete. Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B1 Required B2 Calculate the economic value added for Acme and Apex. Note: Enter your answers in millions rounded to 2 decimal places. Economic value added for Acme million Economic value added for Apex millionHello. I need help with the following question please. Taylor Company has a target capital structure that consists of $3.3 million of debt capital, $2.5 million of preferred stock financing, and $2.8 million of common equity. The corresponding weights of its debt, preferred stock, and common equity financing that should be used to compute its weighted cost of capital (rounded to the nearest wo decimal places) are: 38.37%, 29.07%, and 32.56%, respectively 32.04%, 34.53%, and 33.43%, respectively 29.07%, 32.56%, and 38.37%, respectively 34.53%, 33.43%, and 32.04%, respectively Consider the following case: Mason Limited, a key competitor of Taylor Company in the construction field, has a capital structure consisting of 45% debt, 5% preferred stock, and 50% common equity. Concerned that its cost of capital may put it at a competitive disadvantage vis-a-vis the Taylor Company, a Mason analyst has been tasked with computing and comparing the weighted costs…Evans Technology has the following capital structure. Debt Common equity 35% 65 The aftertax cost of debt is 7.50 percent, and the cost of common equity (in the form of retained earnings) is 14.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Common equity Weighted average cost of capital Weighted Cost % % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 16.50 percent. Debt Common equity Weighted average cost of capital b. Recalculate the firm's weighted average cost of capital. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal…
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- Integrative-Optimal capital structure Medallion Cooling Systems, Inc., has total assets of $10,200,000, EBIT of $2,000,000, and preferred dividends of $197,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment: Capital structure debt ratio 0% 15 30 45 60 Debt Ratio EBIT Less: Interest EBT Taxes @40% Net profit Less: Preferred dividends EPS Profits available to common stockholders # shares outstanding a. Calculate earnings per share for each level of indebtedness. b. Use the equation Po EPS/r, and the earnings per share calculated in part (a) to calculate a price per share for each level of indebtedness. c. Choose the optimal capital structure. Justify your choice. a. Calculate earnings per share for each level of indebtedness. Calculate the EPS below: (Round to the nearest dollar.…Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 15% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 28%. Debt The firm can sell for $1015 a 19-year, $1,000-par-value bond paying annual interest at a 9.00% coupon rate. A flotation cost of 2.5% of the par value required. Preferred stock 7.50% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $3.00 ten years ago to the $4.44 dividend payment, Do, that the company just recently made.…Calculation of individual costs and WACC: Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 35% long-term debt, 10% preferred stock, and 55% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 28%. debt The firm can sell for $1010 a 14-year, $1,000-par-value bond paying annual interest at a 7.00% coupon rate. A flotation cost of 2.5% of the par value is required. Preferred stock 7.00% (annual dividend) preferred stock having a par value of $100 can be sold for $88. An additional fee of$4 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $70 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.25 ten years ago to the $3.67 dividendpayment, D0, that…
