Theodore Inc, has a capital structure made up of 50% in common equity, 40% in debt...

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Theodore Inc, has a capital structure made up of 50% in common equity, 40% in debt and 10% in preferred equity

Theodore Inc. has a capital structure made up of 50% in common equity, 40% in debt and 10% in preferred equity. The cost of c

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Answer 1

Answer #1

After tax cost of debt = 8%*(1-.4)=4.8%


Finance Mode	Weight	Cost (after tax)	Weighted cost of capital
a	b	c	d=b*c
Equity	0.5	0.2	0.1
Preferred stock	0.1	0.13	0.013
Debt (after tax)	0.4	0.048	0.0192
			0.1322


Weighted cost of capital =13.22%

Correct Option:THIRD

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Answer 2

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Theodore Inc, has a capital structure made up of 50% in common equity, 40% in debt...

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