How is firms weighted average cost of capital utilized

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Reference no: EM131262358

Pilot Corporation has the following current capital structure, which is considered optimal:

Bank Loans $25,000

Bonds $35,000

Preferred Stock $65,000

Common Stock $80,000

Pilot is paying interest at a rate of 12% on its’ outstanding loans, a 10% rate of return on its’ outstanding bonds, a 12% rate of return on its’ preferred stock, and its’ common stockholders require an 8% rate of return. The firms’ average tax rate is 40%. Based on the information provided, calculate the firms’ weighted average cost of capital. In addition, explain what a firms’ weighted average cost of capital represents. Finally, how is the firms’ weighted average cost of capital utilized by management?

Reference no: EM131262358

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