Question

A firm has determined its cost of each source of capital and optimal capital structure, which is composed of the following sources and target market value proportions:

Source of capital / Taget Market Proportions / After-Tax Cost
Long-term Debt/ 40% / 6%
Preferred Stock / 10% / 11
Common Stock Equity / 50 / 15


The weighted average cost of capital is

Answer 1

weighted average cost of capital = 40% * 6% +10% * 11% +50%* 15% =11.00%