WEIGHTED AVERAGE COST OF CAPITAL – P&G. Peñafiel and Godoy have an optimal capital structure that consists of 40% debt and 60% common equity. They expect to have $30,000,000 of new retained earnings available for investment for the next year.
SKETCH THE MARGINAL COST OF CAPITAL SCHEDULE. LABEL ALL POINTS.
Marginal Cost of Capital (MCC):
BREAKPOINT = Amount of capital at which sources cost of capital changes / Proportion of new capital raised from the source.
Break point = $30 million / 0.6 = $50million.
Capital structure Details:
Sources | Price | units | Toatl MV | %of total |
Long term Debt | 8000 | 1000 | 8000000 | 80.00% |
Preffered stock | 900 | 50 | 45000 | 45.00% |
Common stock | 60 | 60 | 1200 | 12.00% |
Bond Details | Value |
Tax Rate | 30% |
Coupon Rate | 10% |
Face Value | 1000 |
Maturity | 10 |
Flotation | 3% |
Preffered stock | Value |
Dividend | $9 |
Flotation | 3 |
CommonStock Data | Values |
Dividend | $ 9 |
Growth Rate | 6% |
Floatation | 3 |
WACC = 40%*6% + 60% * 10% = 8.4%
The MCCSchedule will look as follows:
WEIGHTED AVERAGE COST OF CAPITAL – P&G. Peñafiel and Godoy have an optimal capital structure that...
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