Calculate the weights of capital

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Reference no: EM13879346

As a consultant to GBH skiwear, you have been ask to compute the appropriate discount rate to use to evaluate the purchase of a new warehouse facility. You have determined the market value of the firm's capital structure as follows: Source of Caital Market Value Bonds $470,000 Preferred Stock $110,000 Common Stock $450,000 To finance the purchase, GBH will sell 20 year bonds with a 1,000 par value paying 7.5 percent per year (paid semi-annually), at the market price of $953. Preferred stock paying a $2.49 dividend can be sold for $35.67. Common stock for GBH is currently selling for $50.77 per share. The firm paid a $3.91 dividend last year and expects dividends to continue growing at a rate of 3.7 percent per year into the indefinite future. The firm's marginal tax rate is 34%. What discount rate should you use to evaluate the warehouse projects?

a. Calculate the weights of capital.

b. The weight of debt in the firms capital structure is ____% (round to two decimal places)

Reference no: EM13879346

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