Question

Crypton Electronics has a capital structure consisting of 36 percent common stock and 63 percent debt. A debt issue of $1000 par value, 5.8 percent bonds that mature in 15 years and pay annual interest will sell for $980. Common stock of the firm is currently selling for $29.12 per share and the firm expects to pay a $2.17 dividend next year. Dividends have grown at the rate of 4.7 percent per year and are expected to continue to do so for the foreseeable future. What is Crypton's cost of the capital where the firm's tax rate is 30 percent?

a. the after cost of debt is

b. the cost of common equity is

c. Crypton's cost of capital is

Answer 1

a) After-cost of debt is:-

=RATE(15,5.8%*1000,-980,1000)*(1-30%)

=4.20%

b) cost of common equity:-

=2.17/29.12+4.7%

=12.15%

c) cost of capital:-

=(4.20%*63%)+(12.15%*36%)

=7.02%