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Compute weighed average cost of capital

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Question - Assume total asset of a given MNC as measured on Book value is $ 200 million that financed with various sources of funds. It composed of $80million debt, $90 million common Equity and the remaining $30million preferred stock. The Company has a new proposal for foreign investment which requires $50 million in funds, of which $30 million will be provided by parent company funds, $5 million by retained earnings, and $15 million through the issue of new debt by the subsidiary. The cost of common Equity for the Company equals 15 %, cost of preferred stock is 10 % and its after-tax cost of debt is 5 %.

Required - Compute Weighed Average cost of capital?

Reference no: EM132629908

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