Chapter 11, Problem 25P

Summary Introduction

To calculate: The cost of capital for each individual component in the company’s capital structure as well as the WACC for A-Rod Construction Company.

Introduction:

Cost of Capital: 

It refers to the rate of return paid by the company to the shareholders on investments and is

helpful in the evaluation of investment opportunities.

Weighted average cost of capital (WACC):

It is defined as the average rate at which a company needs to pay all its shareholders in return for financing its assets. It is primarily termed as the firm’s cost of capital.