Target capital structure for raising funds

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Reference no: EM13917954

Barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 40%. Assume that the firm's cost of debt, rd, is 7.3%, the firm's cost of preferred stock, rp, is 6.8% and the firm's cost of equity is 11.3% for old equity, rs, and 11.86% for new equity, re.

a) What is the firm's weighted average cost of capital (WACC1) if it uses retained earnings as its source of common equity? Round your answer to 3 decimal places. Do not round Intermediate calculations.

b) What is the firm’s weighted average cost of capital (WACC₂) if it has to issue new common stock? Round your answer to 3 decimal places. Do not round Intermediate calculations

Reference no: EM13917954

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