The Williams Company has a present capital structure (that it considers optimal) consisting of 30 percent long-term debt and 70 percent common equity. The company plans to finance next year’s capital budget with additional long-term debt and retained earnings. New debt can be issued at a coupon interest rate of 10 percent.The cost of retained earnings (internal equity) is estimated at 15 percent. The company’s marginal tax rate is 40 percent.Calculate the company’s weighted cost of capital for the coming year.

The Williams Company has a present capital structure (that it considers optimal) consisting of 30 percent long-term debt and 70 percent common equity. The company plans to finance next year’s capital budget with additional long-term debt and retained earnings. New debt can be issued at a coupon interest rate of 10 percent.The cost of retained earnings (internal equity) is estimated at 15 percent. The company’s marginal tax rate is 40 percent.Calculate the company’s weighted cost of capital for the coming year.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 9P

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