Question

Global Technology’s capital structure is as follows: Debt 35 % Preferred stock 15 Common equity 50 The aftertax cost of debt is 9.00 percent; the cost of preferred stock is 13.00 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. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)

Answer 1

Answer:

weighted average cost of capital  = 13.10%

Explanation:

given data

Debt = 35%

Preferred stock = 15

Common equity = 50

cost of debt = 9 percent

cost of preferred stock = 13 percent

cost of common equity = 16 percent

to find out

Weighted Average cost of capital

solution

we get here weighted cost of each source of capital  that is

Weighted Cost  of Debt  = 0.35 * 9%  =  3.15 %        ....................1

Weighted Cost  of Preferred Stock = 0.15 * 13% = 1.95%     .........2

Weighted Cost  of Common Stock = 0.50 * 16% = 8 %    ..............3

so

so weighted average cost of capital  will be

weighted average cost of capital  = 3.15 % + 1.95% + 8 %

weighted average cost of capital  = 13.10%