Gainer Company has three sources of financing: $3 million of mortgage bonds paying 5 percent interest, $2.5 million of unsecured bonds paying 8 percent interest, and $4.5 millsion of common stock, which is considered to be an average risk (with a 6 percent premium). The company's tax rate is 40 percent and the rate of interest on long-term government bonds is 3 percent. Last year, Gainer Company had after-tax income of $769,000. Amount Percent After-Tax Cost Weighted Cost Mortage bonds $3,000,000 0.3 Unsecured bonds $2,500,000 0.25 Common stock $4,500,000 0.45 Total $10,000,000 Fill in the following table to calculated the weighted avergae percent cost of capital.
Gainer Company has three sources of financing: $3 million of mortgage bonds paying 5 percent interest, $2.5 million of unsecured bonds paying 8 percent interest, and $4.5 millsion of common stock, which is considered to be an average risk (with a 6 percent premium). The company's tax rate is 40 percent and the rate of interest on long-term government bonds is 3 percent. Last year, Gainer Company had after-tax income of $769,000. Amount Percent After-Tax Cost Weighted Cost Mortage bonds $3,000,000 0.3 Unsecured bonds $2,500,000 0.25 Common stock $4,500,000 0.45 Total $10,000,000 Fill in the following table to calculated the weighted avergae percent cost of capital.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Gainer Company has three sources of financing: $3 million of mortgage bonds paying 5 percent interest, $2.5 million of unsecured bonds paying 8 percent interest, and $4.5 millsion of common stock, which is considered to be an average risk (with a 6 percent premium). The company's tax rate is 40 percent and the rate of interest on long-term government bonds is 3 percent. Last year, Gainer Company had after-tax income of $769,000.
| Amount | Percent | After-Tax Cost | Weighted Cost | |
| Mortage bonds | $3,000,000 | 0.3 | ||
| Unsecured bonds | $2,500,000 | 0.25 | ||
| Common stock | $4,500,000 | 0.45 | ||
| Total | $10,000,000 |
Fill in the following table to calculated the weighted avergae percent cost of capital.
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