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Pages:
1 page/≈275 words
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Style:
APA
Subject:
Accounting, Finance, SPSS
Type:
Math Problem
Language:
English (U.S.)
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Date:
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Topic:

Cost of capital

Math Problem Instructions:

Based on the information below, calculate the weighted average cost of capital. Great Corporation has the following capital situation. Debt: One thousand bonds were issued five years ago at a coupon rate of 11%. They had 20-year terms and $1,000 face values. They are now selling to yield 9%. The tax rate is 37% Preferred stock: Two thousand shares of preferred are outstanding, each of which pays an annual dividend of $7.50. They originally sold to yield 15% of their $50 face value. They're now selling to yield 11%. Equity: Great Corp has 108,000 shares of common stock outstanding, currently selling at $18.48 per share. Use the risk premium approach and assume a 3% risk premium

Math Problem Sample Content Preview:

WEIGHTED AVERAGE COST OF CAPITAL
STUDENT’S NAME
INSTITUTION AFFILIATION
A company's Operations are funded by either debt or equity. WACC is the average of the costs of these sources of financing, The WACC equation is the cost of each capital component multiplied by its proportional weight and then summing
:WACC=EV*Re+PV*Rp+DV*Rd*(1-Tc)
Where:Re = cost of equity = 3%Rd = cost of debt = 11%
Rp=cost of preferred stock = 15%E = market value of the firm's equity =108000 * 18.48 = 1995840D = market value of the firm's debt =100011%10001-(1+0.09)150.09+10001.0915=1161214
P = market value of the firm's preferred stock =10007.50.11=...
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