Daphney Corporation has raised $150,000 in equity financing through the inssuran

Question

Daphney Corporation has raised $150,000 in equity financing through the inssurance of shares.Stockhoders expect to earn an average of 15% per year on their equity investment in Daphney. In addition, the corporation has issued $70,000 of 10% bonds. The corporation has also accumulated $25,000 in earnings that hve been retained in the company. Investors expect to earn about 12% on the earnings that are retained in the company. Using the weighting procedure discussed in the chapter, calculate Dapheny Corporation's cost of capital. (Ignore taxes in calculating the cost of debt).

Explanation / Answer

Amount Weight Equity 150000 15% 0.61 0.09 Debt 70000 10% 0.29 0.03 Retained Earnings' 25000 12% 0.10 0.01 245000 Dapheny Corporation's cost of capital 13.27%

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.