Based on the information below, calculate the weighted average cost of
capital.
Great Corporation has the following capital situation.
Debt - One thousand bonds were issued five years ago at a coupon rate of 8%. 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. 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%.
TUTORIAL PREVIEW
File name: Great Corporation .xls File type: .xls PRICE: $10
Great Corporation has the following capital situation.
Debt - One thousand bonds were issued five years ago at a coupon rate of 8%. 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. 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%.
TUTORIAL PREVIEW
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Debt Capital:
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Calculation of present value of Bonds:
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Rate = 9%/2 =
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4.5%
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Nper = 20 x 2 =
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40
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PMT = 1,000 x 8%x1/2 =
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-40
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