Weighted-average cost of capital, Financial Management

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A Company has the following capital structure:

Debt: $2,000,000
Preferred: $1,000,000
Common: $4,000,000
Retained Earnings: $3,000,000

The amounts shown gives book values. The market values and the after-tax cost of the components are as follows;

Debt: $1,800,000            .06
Preferred: $700,000       .11
Common: $12,500,000   .15

Determine the weighted-average cost of capital.

(b) Explain and Describe the two methods of calculating the cost of equity

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