Question

Weighted Average Cost of Capital Gardner, Inc., plans to finance its expansion by raising the needed investment capital from the following sources in the indicated proportions and respective capital cost rates: Capital Cost Source Proportion Rate Bonds 30% 13% Preferred stock 10% 9% Common stock 50% 12% Retained earnings 10% 9% 100% Calculate the weighted average cost of capital. Round answers to one decimal place. For example, 0.4567 = 45.7%. Weighted Average Cost of Capital Bonds Preferred stock Common stock Retained earnings

Answer 1

Weighted Average
Bonds	3.9%
Preferred Stock	0.9%
Common Stock	6.0%
Retained Earnings	0.9%
	11.7%
Working
Bonds	(30% x 13%)
Preferred Stock	(10% x 9%)
Common Stock	(50% x 12%)
Retained Earnings	(10% x 9%)