The target capital structure for QM Industries is 40 percent common stock, 10 percent preferred stock, and 50 percent debt. If the cost of equity for the firm is 18 percent, the cost of preferred stock is 10 percent, the before-tax cost of debt is 8 percent, and the firm's tax rate is 35 percent, what is QM's weighted average cost of capital?
SOLUTION PREVIEW
SOLUTION PREVIEW
|
Source of capital
|
Proportion
of capital (a)
|
Cost
of capital (b)
|
Total
cost ( a x b)
|
|
Common stock
|
40%
|
18%
|
7.200%
|
|
Preferred stock
|
10%
|
10%
|
1.000%
|
File name: The-target-capital.xls File type: application/vnd.ms-excel Price: $4
