Calculate the weighted average cost of capital

Reference no: EM13280063

XYZ, a Telecom Company, has the following capital structure,which is considered to be optimal:

Debentures 20%

Preferred stock 20%

Common equity 60%

Total 100%

During this tax year, company is liable to pay tax @ 35%, andinvestors are expecting that earnings and dividends will grow at a constant rate of 10%.Current year's dividend is Rs. 4 per share and the common stocks are selling at Rs. 60per share.

XYZ can obtain new capital in the following ways:

Preferred stock: New preferred stock with adividend of Rs. 15 can be sold to the public

at a price of Rs. 97 per share.

Debentures: Debentures can be sold at aninterest rate of 13%.

You are required to

Determine the cost of each capital structure componentand

Calculate the weighted average cost of capital.

Reference no: EM13280063

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