Reference no: EM132468059

Problem: Given the following information, calculate the weighted average cost of capital for Puppet Corporation.

Percent of capital structure:

Debt 45%

Preferred stock 30% 

Common equity 25%

Additional information:

Bond coupon rate 8.5%

Bond yield 7.75%

Bond flotation cost 2%

Dividend, expected common $1.50

Price, common $30.00

Dividend, preferred 6%

Flotation cost, preferred 3%

Flotation cost, common 4.00%

Corporate growth rate 6%

Corporate tax rate 35%

a. Calculate the cost of capital assuming use of internally generated funds.

Internal capital cost

b. Calculate the cost of capital assuming use of externally generated funds.

External capital cost