ACC – Calculate the weighted average cost of capital

ACC – Calculate the weighted average cost of capital

Question


Calculate the weighted average cost of capital. Great corporation has the following situation.

Debt: One thousand bonds were issued five years ago at a coupon rate of 8%.

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They had 25-year terms and $1,000 face values. They are now selling to yield 9%.

The tax rate is 36%.

Preferred stock: Two thousand shares of preferred are outstanding, each of which pays an annual dividend of $7.50.

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They originally sold to yield 15% of their $50 face value.

They're now selling to yield 8%.

Equity: Great Corp has 125,000 shares of common stock outstanding, currently selling at $14.48 per share.

Dividend expected for next year is $1.00 and the growth rate is 5%