Reference no: EM133056887
Suppose Westerfield Co. has the following financial information:
Debt:
Preferred stock:
Common stock:
200,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 106% of par and have 20 years to maturity. The coupon rate equals 3%, and the bonds make semiannual interest payments.
250,000 shares of preferred stock outstanding; currently trading for $118 per share and it pays a dividend of $5.45 per share every year.
5,000,000 shares of common stock outstanding; currently trading for $65 per share. Beta equals 0.88.
Market and firm information: The expected return on the market is 10%, the risk-free rate is 2%, the tax rate is 21%.
1. Calculate the weight of the common stock in the capital structure. (Enter percentages as decimals and round to 4 decimals)
2. Calculate the weight of debt in the capital structure. (Enter percentages as decimals and round to 4 decimals)
3. Calculate the before-tax cost of debt. (Enter percentages as decimals and round to 4 decimals)
4. Calculate the after-tax cost of debt. (Enter percentages as decimals and round to 4 decimals)
5. Calculate the cost of preferred stock. (Enter percentages as decimals and round to 4 decimals)
6. Calculate the cost of common stock. (Enter percentages as decimals and round to 4 decimals)
7. Calculate the weighted average cost of capital. (Enter percentages as decimals and round to 4 decimals)