Reference no: EM132055991

PROBLEM: Weighted Average Cost of Capital

GIVEN:

Assets:

Cash $200,000

A/R $300,000

P.P.E $3,600,000

Total $4,100,000

Liabilities & Equity

Accts Payable $100,000

Bonds Payable$2,000,000

Liabilities $2,100,000

Equity:

Common Stock$1,000,000

Preferred Stock $500,000

Retained Earnings$500,000

Total Liabilities&Equity $4,100,000

Interest Rate = 10%

Tax Rate = 40%

Common Stock Issue Price=$45

Common Float = $5

Growth = 2%

Expected Common Dividend=$2

Stock Issue Price=$210

Preferred Dividend= $14

Preferred float = $10

REQUIRED:

1. Compute the Cost of Debt

2. Compute the Cost of Common Stock.

3. Compute the Cost of Preferred Stock.

4. Compute the Cost of Retained Earnings.

5. Compute WACC.ROUND OFF TO 2 decimal places

6. How is WACC used in the Corporation?