Jones Company has a target capital structure of 30% debt, 15% preferred stock, a
ID: 2666278 • Letter: J
Question
Jones Company has a target capital structure of 30% debt, 15% preferred stock, and 55% common equity. The company's after tax cost of debt is 7%, its cost of preferred debt is 11%, its cost of retained earnings is 15%, and its cost of new common stock is 16%. The company stock has a beta of 1.5 and the company's marginal tax rate is 35%. What is the company's weighted average cost of capital if retained earnings are used to fund the common equity portion?a) 11.20%
b) 14.45%
c) 13.80%
d) 12.00%
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Explanation / Answer
Plz rate me first Answer is 12% company's weighted average cost of capital if retained earnings are used to fund the common equity portion. =30%(7%) + 15%(11%)+55%(15%) = 2.1%+1.65%+8.25% = 12%
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