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Calculate weighted average cost of capital for westerfield

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Reference no: EM132950925

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%.

Problem 1: Calculate the weight of the common stock in the capital structure. (Enter percentages as decimals and round to 4 decimals)

Problem 2: Calculate the weight of debt in the capital structure. (Enter percentages as decimals and round to 4 decimals)

Problem 3: Calculate the before-tax cost of debt. (Enter percentages as decimals and round to 4 decimals)

Problem 4: Calculate the after-tax cost of debt. (Enter percentages as decimals and round to 4 decimals)

Problem 5: Calculate the cost of preferred stock. (Enter percentages as decimals and round to 4 decimals)

Problem 6: Calculate the cost of common stock. (Enter percentages as decimals and round to 4 decimals)

Problem 7: Calculate the weighted average cost of capital. (Enter percentages as decimals and round to 4 decimals)

Reference no: EM132950925

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