Homework Answers
| Kd = bond yield*(1-Tax rate) | |||
| = 10% (1-35%) = 6.5% | |||
| bond yield to maturity rate to be considered than coupon rate because bonds are priced in market at bond yields | |||
| Kp = Dividend preferred/ (Preferred price- flotation cost) | |||
| = 10 /(106-6.50) = 10.05% | |||
| Ke = (Dividend expected /Price )+growth rate | |||
| = (5.5/89) + 8% | |||
| = 6.18% + 8% = 14.18% | |||
| Cost (after tax) | Weights | Weighted cost | |
| Debt (Kd) | 6.50% | 30% | 1.95% |
| Preferred stock (Kp) | 10.05% | 15% | 1.51% |
| Common Equity (retained earnings) (Ke) | 14.18% | 55% | 7.80% |
| Weighted average cost of capital | 11.26% | ||
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