Weighted average cost of capital

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Reference no: EM13721586

(Weighted average cost of capital) As a consultant to GBH Skiwear, you have been asked to compute the appropriate discount rate to use in the evaluation of the purchase of a new warehouse facility. You have determined the market value of the firm’s current capital structure (which the firm considers to be its target mi of financing sources) as follows: Source of capital Market Values Bonds $480000 Preferred stock $140000 Common stock $400000 To finance the purchase, GBH will sell 20-year bonds with a $1000 par value paying 7.9 percent per year (paid semi annually) at the market price of $928. Preferred stock paying a $2.55 dividend can be sold for $34.76. Common stock for GBH is currently selling for $49.62 per share. The firm paid a $3.94 dividend last year and expects dividends to continue at a rate of 3.8 percent per year into the indefinite future. The firm’s marginal tax rate is 34 percent. What discount rate should you use to evaluate the warehouse project? a. Calculate component weights of capital. The weight of debt in the firm’s capital structure is ___%.

Reference no: EM13721586

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