Given the following information, calculate the weighted average cost for the Han

Question

Given the following information, calculate the weighted average cost for the Han Corp.
Percent of capital structure:
Preferred stock                                                      15%
Common equity                                                     60%
Debt                                                                      25%

Additional information:
Corporate tax rate                                                  34%
Dividend, preferred                                                $9.50
Dividend, expected common                                  $1.50
Price, preferred                                                      $100.00
Growth rate                                                            9%
Bond yield                                                             6%
Price, common                                                               $75.00

Explanation / Answer

WACC = Percentage of Equity x Cost of Equity + Percentage of Preference x Cost of Preference + Percentage of Debt x Cost of Debt x (1-Corporate Tax)

Cost of Common Equity = 1.5 / 75 x 100 = 2%

Cost of Preferred Stock = 9.5 / 100 x 100 = 9.5%

Cost of Debt = 6%

Cost Weight WACC Preferred Stock 9.50% 15% 3.62% Common Equity 2.00% 60% Debt 6.00% 25% Tax Rate 34.00%

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

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