weighted average cost of capital

weighted average cost of capital - common stock. With Stock...

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To calculate the firm’s weighted  average cost of capital (WACC), we  must first calculate the costs of the  individual  financing sources.   Let’s Consider : 1) Cost of Debt 2) Cost of Common Stock Cost of Debt  for a firm is the rate of  return required by the lender, adjusted  for two things: 1)  Flotation Costs :  any costs associated  with obtaining new debt such as  transaction fees, government fees, costs  of printing certificates, paying  underwriters, etc. 2)  Taxes positive impact on debt  financing sources due to interest expense  and subsequent tax shield. No effect on 
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Unformatted text preview: common stock. With Stock With Debt EBIT 400,000 400,000- Interest Expense 0 (50,000) EBT 400,000 350,000- Taxes (34%) (136,000) (119,000) EAT 264,000 231,000 With Stock With Debt EBIT 400,000 400,000- Interest Expense 0 (50,000) EBT 400,000 350,000- Taxes (34%) (136,000) (119,000) EAT 264,000 231,000- Dividends (50,000) 0 Retained Earnings 214,000 231,000...
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weighted average cost of capital - common stock. With Stock...

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