Question

Weighted Average cost of Capital Athens Manufacturing 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 45% 12% Preferred stock 10% 14% Common stock 25% 8% Retained earnings 20% 10% 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

E Answer Weighted Average Gestion of capital (WACC) - To balance financial riskig company borrow I money from different sources of finance company flagnes_in the form of common stock, debt finance, preferred stocks etc. Hence, cost of total capital will be equal to weighted average cost of capital of individyal sovices of finanses Weighled Average cost of Gpital (WACC) is also known as Loverall det of pitys having capitals from the different sourceson WACC depends of the capital ºshyelyre of q_company_It weighs the cost of_capital of a particulax_source_of_capital with its proportion to the total capital Weighled Allevege Cost of Capityl = Aggregate of cost of capital =f(cast of Equity X Proportion of Equity) + (Cost of Preferred stock x proportion of referred stock) + (cost of Bonds X Proportion of Bonds) + (cost of Relyined Earnings X proportion of Retynet Eqrdings:21 Colwlation of weighted average cost of Gapital - Athens Magyfzeturing Info Schedule of weighted Average cost of Cupital source of funds I Proportion ca) cost of Geity) (WACC CC) = (4)X(0) Bonds 45 % 12 % 5.40 % Preferred stock 10 % 14 % 1:40 : Common Stock 25 % 84 3100 20 % 10 % 2000 n. 100 A 10.8 E' The weighted querage cost of capital is 10.8 % کوملموطلع حلواع