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Recalculate tylers weighted average cost of capital

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Question: As an alternative to the capital structure shown in the previous problem for Tyler Oil Company, an outside consultant has suggested the following modifications.

Debt 60%

Preferred stock 5

Common equity 35

Under this new and more debt-oriented arrangement, the aftertax cost of debt is 8.8 percent, the cost of preferred stock is 10.5 percent, and the cost of common equity (in the form of retained earnings) is 15.5 percent.

Recalculate Tyler's weighted average cost of capital. Which plan is optimal in terms of minimizing the weighted average cost of capital?

Reference no: EM132756189

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