Weighted Average Cost of Capital

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Question

AAA Mining Company needs to determine its cost of capital for capital budgeting purposes. The first has the following information: Market Price of Outstanding Bonds: $940.00 Coupon Rate: 8.25% Maturity Value of the Bonds: $1000.00 Years to Maturity: 12 Corporate Tax Rate: 40% Market Value of Outstanding Preferred Stock: $57.25 Par Value: $100.00 Dividend Rate (Taken on Par): 6% Market Price of Common Stock: $72.00 Projected Common Stock Dividend: $5.00 Expected Dividend Growth Rate: 6% Net Proceeds/Share of Sale of New Stock: $66.50 Current Capital structure, based on book values, appears below: Bonds: $2,500,000 Preferred Stock: $1,500,000 Common Stock ($50 par): $3,700,000 Retained Earnings: $2,300,000 Total Capital: $10,000,000 Calculate the weighted average cost of capital for AAA Mining based on market value weights. Jan 10 2014 04:47 PM

 

Solution ID:608972 | This paper was updated on 26-Nov-2015

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