Calculate the weighted average cost of capital

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Reference no: EM132005843

XYZ's capital structure involves only debt and common stock. The long run equilibrium market value weights are: debt = 40% and common stock = 60%. The firm uses the yield-to-maturity of most risky bond for the calculation of the cost of its debt capital and the current yield-to-maturity of XYZ's most risky bond is 12% per annum. For the cost of common stock capital, XYZ wants to use a simple average of all possible models of calculating the cost of equity capital from the given data below:

Beta of the stock = 1.2

Current risk free rate 3% of interest per annum

The current expected rate of return on the market = 9% per annum

Initial dividends per share = $2.00

The current price per share = $20.00

The expected earnings per share = $ 5.00

The growth rate of the divedend stream = 5% per annum, and forever

XYZ's tax rate is 25%

Calculate the weighted average cost of capital of XYZ's Ltd.

Reference no: EM132005843

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