Percent of capital structure: Debt 30 % Preferred stock 15 Common equity 55 Additional information: Bond...
| Percent of capital structure: | |||
| Debt | 30 | % | |
| Preferred stock | 15 | ||
| Common equity | 55 | ||
| Additional information: | |||
| Bond coupon rate | 10 | % | |
| Bond yield | 8 | % | |
| Dividend, expected common | $4.00 | ||
| Dividend, preferred | $11.00 | ||
| Price, common | $55.00 | ||
| Price, preferred | $118.00 | ||
| Flotation cost, preferred | $2.80 | ||
| Corporate growth rate | 7 | % | |
| Corporate tax rate | 35 | % | |
Calculate the weighted average cost of capital for Genex Corporation. Line up the calculations in the order shown in Table 11-1.
Homework Answers
| Cost of debt = Bond yield*(1-t) = 8%*(1-35%) = | 5.20% | ||
| Cost of preferred stock = Preferred dividend/(Price-Flotation cost) = 11/(118-2.80) = | 9.55% | ||
| Cost of equity per constant dividend growth formula = Next expected dividend/Price+Growth rate = 4/55+0.07 = | 14.27% | ||
| WACC = Weight of debt*Cost of debt+Weight of preferred stock*Cost ofpreferred stock+Weight of equity*Cost of equity. | |||
| CALCULATIONS: | After tax cost | Weights | WACC |
| Debt | 5.20% | 30% | 1.56% |
| Preferred stock | 9.55% | 15% | 1.43% |
| Common equity | 14.27% | 55% | 7.85% |
| Weighted average cost of capital | 10.84% |
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Percent of capital structure:
Debt
30
%
Preferred stock
15
Common equity
55
Additional information:
Bond...
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