Question 14Your company has compiled the following data which is based on current costsrelative to its sources of external capital ie long-tem debt, preferred stock andcommon stock equity for various ranges of financing.Source af CapitalLong-lerm debtRange of Total New FinancingO toAfter-tax Cost4 %169759481697595 to3259148123259149 toaboveProferred stock17O to93603422936035 toaboveCommon stock equity180 to1141333211141334 to2808705252808705 to3549127263549127 toaboveCurent retained earmings in coming yearCost of rotained eamings based on current eaningsThe target capital structure proportions are:Target capital structureLong-term debt62898818 %32 %Preferred stock11 %Equity57 %Calculate the WACC prior to he firm exhausting its retained earringsAnswerThe firm expects its range of total new financing to beCalculate the WACC based on new range.Answer3156574

The weighted average cost of capital The weighted average cost of capital refers to a method for…

Question 14 Your company has compiled the folowing data which is based on cument costs reiative to is sources of external capital ie long-tem debt, preferred stock and common stock equity for various ranges of finanding Source of Capital Long derm debt Ater-tax Cost Range of Total New Financing 1697504 3259148 12 3259149 o above Pretered stock 17 936034 22 936036 o above Common stock equily 18 1141333 2808705 3549127 21 1141334 o 25 280870S 3549127 o above Curert retained eamirgs in coming year Cont of retained eamings based on curert eamings The target capital structure proportions are Target capital structure Long-derm debt Profered stock Equty 628968 18 % 32 % 11 % 57 % Calculate the WACC prior bo he fm exhausting its retained earnings Acswer The fem expects is ranga of total new francing to be Calcuate the WACC based on new range Answer 3156574

Question 14 Your company has compiled the folowing data which is based on cument costs reiative to is sources of external capital ie long-tem debt, preferred stock and common stock equity for various ranges of finanding Source of Capital Long derm debt Ater-tax Cost Range of Total New Financing 1697504 3259148 12 3259149 o above Pretered stock 17 936034 22 936036 o above Common stock equily 18 1141333 2808705 3549127 21 1141334 o 25 280870S 3549127 o above Curert retained eamirgs in coming year Cont of retained eamings based on curert eamings The target capital structure proportions are Target capital structure Long-derm debt Profered stock Equty 628968 18 % 32 % 11 % 57 % Calculate the WACC prior bo he fm exhausting its retained earnings Acswer The fem expects is ranga of total new francing to be Calcuate the WACC based on new range Answer 3156574

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 11EP

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Question 1: The company capital structure consists of debt 230000 at 6.45%, preferred stock 260000 at 15.40% and common stock 170000 at 11.33%, calculate and define the company's weighted average cost of capital
A company has on its books the following amounts and the specific costs of each type of capital. Market value Types of capital Debts Preference shares Book Value Specific cost % 400000 380000 110000 900000 5. 100000 8. Equity shares 600000 15 Determine the weighted average cost of capital using: (a) Book value weights, and (b) Market value weights
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