Suppose a firm is made up of 58% equity, 7% preferred stock, and the remainder is...
Suppose a firm is made up of 58% equity, 7% preferred stock, and the remainder is debt. IF the cost to raise debt for this firm is 4%, the cost to raise preferred stock is 5%, and the cost to raise equity is 8%, what is the weighted average flotation cost?
A- 6.04%
B- 5.83%
C- 6.77%
D- 6.39%
E-7.16%
Please show the calculation steps so I can understand how to
solve.
Thank you!
Homework Answers
Weight of debt=100-(58+7)=35%
weighted average flotation cost=Respective costs*Respective weight
=(0.58*8)+(0.07*5)+(0.35*4)
which is equal to
=6.39%
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