PROBLEM: Weighted Average Cost of Capital
GIVEN:
Assets:
Cash $200,000
A/R $300,000
P.P.E $3,600,000
Total $4,100,000
Liabilities & Equity
Accts Payable $100,000
Bonds Payable$2,000,000
Liabilities $2,100,000
Equity:
Common Stock$1,000,000
Preferred Stock $500,000
Retained Earnings$500,000
Total Liabilities&Equity $4,100,000
Interest Rate = 10%
Tax Rate = 40%
Common Stock Issue Price=$45
Common Float = $5
Growth = 2%
Expected Common Dividend=$2
Stock Issue Price=$210
Preferred Dividend= $14
Preferred float = $10
REQUIRED:
1. Compute the Cost of Debt
2. Compute the Cost of Common Stock.
3. Compute the Cost of Preferred Stock.
4. Compute the Cost of Retained Earnings.
5. Compute WACC.ROUND OFF TO 2 decimal places
6. How is WACC used in the Corporation?