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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
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