Reference no: EM133492029

The target capital structure for Jacob Industries is 40% common stock, 10% preferred stock, and 50% debt. If the cost of common equity for the firm is 18%, the cost of preferred stock is 10%, the before-tax cost of debt is 8% and the firm's tax rate is 35%, what is Jacob's weighted average cost of capital? (5 points)

You are working as a consultant on a new project for John Deere Co. Ltd. and have been asked to compute the firm's weighted average cost of capital to use in the evaluation of the purchase of a new warehouse facility. You have been given the following facts:

Source of Capital: Market Value (hint, the weights can be computed here):

Bonds (Debt) $300,000

Preferred Stock $200,000

Common Stock $500,000

Total........ $1,000,000

The facts for each source of capital are as follows (hint, the costs of capital facts are here) :

Bonds:

Face or Par Value of Bond $1,000

Coupon Rate 6% (Paid Annually)

Price or Market Value of Bond $1,020

Number of years 20

Preferred Stock:

Dividend of Preferred Stock $2.50

Market Price of Preferred Stock $35.00

Common Stock:

Dividend growth rate 4%

Market Value of Stock $50

Dividend paid last year $4.00 (hint, this is last year not this year)

Tax Rate: 34%

Question: What is the firm's weighted average cost of capital?