Homework Answers
| 1] | After tax cost of debt = 7%*(1-35%) = | 4.55% | |||
| 2] | The Cost of Capital with market value weights is calculated below: | ||||
| Source of Capital | Market Value | Market Value Weight | Component Cost | Cost of capital [WACC] | |
| Debt [as given] | $ 517,152 | 25.09% | 4.55% | 1.14% | |
| Preferred stock [as given] | $ 40,478 | 1.96% | 8.00% | 0.16% | |
| Common stock [Capitalization value] | $ 1,503,612 | 72.95% | 12.00% | 8.75% | |
| Total | $ 2,061,242 | 100.00% | 10.05% | ||
| Cost of capital [WACC] = 10.05% |
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