Firms capital funding should be debt financing

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Reference no: EM13971870

McKnights Inc. uses a combination of common stock, preferred stock, and debt financing. The company wants preferred stock to represent 6 percent of the total financing. It also wants to structure the firm in a manner that will produce a weighted average cost of capital of 7.4 percent. The aftertax cost of debt is 5 percent, the cost of preferred is 7.4 percent, and the cost of common stock is 11.1 percent. What percentage of the firm's capital funding should be debt financing?

Reference no: EM13971870

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