Calculate weighted average cost of capital


Question: Jake's Sound Systems has 210,000 shares of common stock outstanding at a market price of $36 a share. Last month, Jake's paid yearly dividend in the amount of $1.593 per share. The dividend growth rate is four percent. Jake's also has 6,000 bonds outstanding with a face value of $1,000 per bond. The bonds carry a 7% coupon, pay interest yearly, & mature in 4.89 years. The bonds are selling at 99 percent of face value. The company's tax rate is 34%. Calculate Jake's weighted average cost of capital?      

[A]     6.3%

[B]    6.9%

[C]     7.2%

[D]     5.3%

[E]    5.8%

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Finance Basics: Calculate weighted average cost of capital
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