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How do compute the weight average cost of capital

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Reference no: EM132771476

Problem 1: Assume the following capital structure and cost of capital for A Company. Compute the Weight Average Cost of Capital considering all four sources of funds.

Cost (%)

Mortgage Bonds ($1,000 par) $20,000,000 5.14

Preferred Stock ($100 par) 5,000,000 13.40

Common Stock ($40 par) 20,000,000 7.11

Retained Earnings 5,000,000 16.00

Problem 2: Based on the results of your computation in problem #1, what financing mix would you prefer? Illustrate your answer.

Reference no: EM132771476

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