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What is Zonk weighted-average cost of capital

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Reference no: EM133012200

Question - Use the following financial data of Zonk Corporation to answer the next four questions.

Zonk's Financial Information

Book value of debt capital $8,000,000

Book value of preferred equity capital $2,000,000

Book value of common equity capital $6,000,000

Number of common shares outstanding 1,000,000

Per share price of common stock $10

Per share price of preferred stock $50

Pretax borrowing rate 6%

Annual preferred dividend per share $4

Common equity beta 1.2

Effective income tax rate 20%

Please note that I have calculated that Zonk's after-tax cost of debt is 4.8%

A. What is Zonk's cost of preferred stock?

B. What is Zonk's cost of common equity? Assume that the risk-free rate is 2% and the market risk premium is 7%.

C. What is Zonk's weighted-average cost of capital?

Reference no: EM133012200

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