Question

Global Technology’s capital structure is as follows: Debt 50 % Preferred stock 35 Common equity 15 The aftertax cost of debt is 9.00 percent; the cost of preferred stock is 12.50 percent; and the cost of common equity (in the form of retained earnings) is 16.00 percent. Calculate the Global Technology’s weighted cost of each source of capital and the weighted average cost of capital.

Answer 1

Answer:

The computation is shown below:

Explanation:

The computation is shown below:

For weighted cost of each source of capital is

Debt:

= Cost of debt × Weight of debt

= 9% × 50%

= 4.5%

Equity

= Cost of equity × weight of equity

= 16% × 0.15

= 2.4%

Preferred stock

= Cost of preferred stock × weight of preferred stock

= 12.50% × 35%

= 4.375%

Now the weighted average cost of capital is

= 4.5% + 2.4% + 4.375%

= 11.275%

Therefore in the first part we multiplied the cost with the weight of each source of capital

And, then we add the all answers