Joy Corp. wants to calculate its weighted average cost of capital. The company has no sufficient retained earnings to fund the equity portion of the capital Additional information revealed the following:
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Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
- Joy Corp. wants to calculate its weighted average cost of capital. The company has no sufficient
retained earnings to fund the equity portion of the capital Additional information revealed the following:
- Dividend paid recently …….P2.00 per share
- * Growth rate - 6%
- Stock price …………… P 32.00 per share
- * Flotation cost - 10%
- Bond YTM ……………. 9%
- * Tax rate - 40%
- Target capital structure: 75% Equity; 25% Debt
- What is the company’s WACC?
Step by step
Solved in 5 steps
- What is the weighted-average cost of capital for SKYE Corporation given the following information? Equity shares outstanding Stock price per share Yield to maturity on debt Book value of interest-bearing debt Coupon interest rate on debt. Interest rate on government bonds SKYE's equity beta Historical excess return on stocks Tax rate Note: Enter your answer to 1 decimal place. Weighted-average cost of capital % 1 million. $ 35 7.68% $14 million 9% 7% 0.75 7.0% 40%What is the weighted-average cost of capital for SKYE Corporation given the following information? Equity shares outstanding Stock price per share Yield to maturity on debt Book value of interest-bearing debt Coupon interest rate on debt Interest rate on government bonds SKYE's equity beta Historical excess return on stocks Tax rate Note: Enter your answer to 1 decimal place. X Answer is complete but not entirely correct. Weighted-average cost of capital 11.6 × % 1 million $ 23 7.68% $14 million 9% 7% 0.75 5.8% 40%What is the weighted-average cost of capital for SKYE Corporation given the following information? 1 million Equity shares outstanding. Stock price per share Yield to maturity on debt Book value of interest-bearing debt Coupon interest rate on debt Interest rate on government bonds SKYE's equity beta Historical excess return on stocks Tax rate Note: Enter your answer to 1 decimal place. Weighted-average cost of capital % $ 20 7.68% $11 million 98 3% 0.75 5.5% 45%
- Evans Technology has the following capital structure. Debt Common equity 30% 70 The aftertax cost of debt is 7.50 percent, and the cost of common equity (in the form of retained earnings) is 14.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Common equity Weighted average cost of capital Weighted Cost % 0.00 % Q Search An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 16.50 percent. b. Recalculate the firm's weighted average cost of capital. O CheWhat is the weighted average cost of capital for SKYE Corporation given the following information? Equity shares outstanding 1 million Stock price per share $ 23 Yield to maturity on debt 7.68% Book value of interest - bearing debt $14 million Coupon interest rate on debt 9% Interest rate on government bonds 7% SKYE's equity beta 0.75 Historical excess return on stocks 5.8% Tax rate 40% Note: Enter your answer to 1 decimal place.Evans Technology has the following capital structure. Debt Common equity 35% 65 The aftertax cost of debt is 7.50 percent, and the cost of common equity (in the form of retained earnings) is 14.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Common equity Weighted average cost of capital Weighted Cost % % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 16.50 percent. Debt Common equity Weighted average cost of capital b. Recalculate the firm's weighted average cost of capital. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal…
- Check my work Evans Technology has the following capital structure. Debt Common equity 25% 75 The aftertax cost of debt is 7.00 percent, and the cost of common equity (in the form of retained earnings) is 14.00 percent. a. What is the firm's weighted average cost of capital? (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost Debt Common equity Weighted average cost of capital 0.00 % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. EGO 152 APA ttv MacBook AirGiven the following information: Percent of capital structure: Preferred stock Common equity (retained earnings) Debt Additional information: 15% 45 40 Corporate tax rate 35% Dividend, preferred $ 10.00 Dividend, expected common $ 5.50 Price, preferred $ 98.00 Growth rate 10% Bond yield Flotation cost, preferred 11% $ 8.20 $ 77.00 Price, common Calculate the weighted average cost of capital for Digital Processing Incorporated Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Preferred stock Common equity (retained earnings) Weighted average cost of capital Weighted Cost 0.40% 0.15 0.45 1.00 %Evans Technology has the following capital structure. Debt Common equity The aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 15.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. 48% 60 Debt Common equity Weighted average cost of capital Weighted Cost % % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 9.50 percent, and the cost of common equity (in the form of retained earnings) is 17.50 percent. b. Recalculate the firm's weighted average cost of canital
- Percent of capital structure: Preferred stock Common equity (retained earnings) Debt Additional information: Corporate tax rate Dividend, preferred 15% 45 40 35% $ 10.00 Dividend, expected common $ 5.50 Price, preferred $ 98.00 Growth rate 10% Bond yield 11% Flotation cost, preferred $ 8.20 $ 77.00 Price, common Calculate the weighted average cost of capital for Digital Processing Incorporated Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. Debt Preferred stock Common equity (retained earnings) Weighted average cost of capital Weighted Cost 7.15 11.14 X % 7.86 26.15 %Percent of capital structure: Preferred stock Common equity (retained earnings) Debt Additional information: Corporate tax rate Dividend, preferred Dividend, expected common Price, preferred Growth rate Bond yield Flotation cost, preferred Price, common 15% 45 40 35% Debt Preferred stock Common equity (retained earnings) Weighted average cost of capital $ 8.00 $ 3.50 $ 105.00 98 8% $ 10.40 $ 78.00 Calculate the weighted average cost of capital for Digital Processing Incorporated Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. Weighted Cost 5.20 % 8.33 11.50 25.03 %1. Ridge Tool has on its books the amounts and specific (after-tax) costs shown in the table for each source of capital Owing Source of capital Book value Individual cost Long-term debt $760,000 4.2% Preferred stock 50,000 10% Common stock equity 600,000 14% 1) Calculate the firm's weighted average cost of capital (WACC) using book value weights. ts) Weight for Long-term debt = Weight for Preferred stock = Weight for Common stock = WACC = 2) Explain how the firm can use this cost in the investment decision-making process.