A company has determined that its optimal capital structure consists of 55 perce

Question

A company has determined that its optimal capital structure consists of 55 percent debt and the rest is equity.  Given the following information, calculate the firm's weighted average cost of capital.kd = 5.5 %Tax rate = 31 %P0 = $ 36.63 Growth = 5.6 %D1 = $ 0.97 Show your answer to the nearest .1% A company has determined that its optimal capital structure consists of 55 percent debt and the rest is equity.  Given the following information, calculate the firm's weighted average cost of capital.kd = 5.5 %Tax rate = 31 %P0 = $ 36.63 Growth = 5.6 %D1 = $ 0.97 Show your answer to the nearest .1%

Explanation / Answer

P0 36.63 D1 0.97 G 5.60% Ke (D1/Po) + G Cost of Equity 8% % of Equity 45% Kd 5.50% Tax 31% Post Tax Cost of Debt 3.8% % of Debt 55% Cost of Capital 5.80%

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