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Week Three Mini Case Solution

# Week Three Mini Case Solution - 1.00.1008 or 10.08 b...

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Mini Case a. Weighted Cost of Capital Cost of Debt: \$1,035 (1 - .15) = \$879.75 = NP 0 \$879.75 = = + 16 1 t t d ) k (1 80 \$ + 16 d ) k 1 ( 000 , 1 \$ + k d = 9.49% debt of cost tax After - = 9.51%(1 - .34) = 6.26% Cost of Preferred Stock: k ps = 0 NP D = \$1.50 (\$19 \$2.01) - = 8.83% Cost of Internal Common Funds: k cs = 0 P 1 D + g = 35 \$ ) 06 . 0 1 ( 50 . 2 \$ + + 0.06 = .1357 = 13.57% Weighted Cost of Capital (K wacc ) using internal common funds only. Weights Costs Weighted Costs Bonds 0.38 6.26% 0.0238 Preferred Stock 0.15 8.83% 0.0132 New Common Stock 0.47 13.57% 0.0638

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Unformatted text preview: 1.00 .1008 or 10.08% b. Raising external common equity Cost of External Common Stock: k ncs = o NP 1 D + g = 21 . 1 \$ 35 \$ ) 06 . 1 ( 50 . 2 \$-+ + 0.06 = .1414 = 14.14% Weighted Cost of Capital (K wacc ) using external common funds only. Weights Costs Weighted Costs Bonds 0.38 6.26% 0.0238 Preferred Stock 0.15 8.83% 0.0132 New Common Stock 0.47 14.14% 0.0665 1.00 .1035 or 10.35%...
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Week Three Mini Case Solution - 1.00.1008 or 10.08 b...

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