What is madison weighted average cost of capital

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Reference no: EM131566109

As president of Madison Corp. your finance people tell you that Madison is 30% debt and 70% common stock. In addition they tell you the cost of the common stock is 12.5% and the cost of the debt is 6.0%.

What is Madison’s weighted average cost of capital? (round at 2 decimal places).

The president suggest that Madison take on more debt in the future to finance additional positive net present value projects. She estimates that a 60% debt and 40% equity mixture for the entire corporation is better. If Madison adopts this new debt oriented structure the cost of equity will increase to 15% and the cost of debt will increase to 7.5%.

Please recalculate and report the new weighted average cost of capital and determine if Madison should stay where it is or adopt the higher debt oriented capital structure? (round at 2 decimal places)

Reference no: EM131566109

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