Given the following capital structure, calculate the weighted average cost of ca

Question

Given the following capital structure, calculate the weighted average cost of capital for Simple Technology Co. Debt 35 %, Preferred stock 15%, Common equity 50%. The aftertax cost of debt is 9.00 percent; the cost of preferred stock is 13.00 percent; and the cost of common equity (in the form of retained earnings) is 16.00 percent.

Calculate the Simple Technology’s weighted cost of each source of capital (debit, preferred stock, and cost of common equity) and the weighted average cost of capital. Answer as a percent rounded to 2 decimal places.

Explanation / Answer

Weighted cost Debt (0.35*0.09)=3.15% Preferred stock (0.15*0.13)=1.95% Common equity (0.5*0.16)=8% WACC 13.10%

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

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