Component Weights of Capital
Component Weights of Capital is calculated by dividing the Market value of the capital components with the total market value
The weight of debt in the firm’s capital structure
The weight of debt in the firm’s capital structure = [Market Value of Debt / Total Market Value] x 100
= [$250,000 / $970,000] x 100
= 25.77%
The weight of Preferred Stock in the firm’s capital structure
The weight of debt in the firm’s capital structure = [Market Value of Preferred Stock / Total Market Value] x 100
= [$200,000 / $970,000] x 100
= 20.62%
The weight of Common Stock in the firm’s capital structure
The weight of debt in the firm’s capital structure = [Market Value of Common Stock / Total Market Value] x 100
= [$520,000 / $970,000] x 100
= 53.61%
(Calculating the weighted average cost of capital) You are working as a consultant to the Lulu At...
(Calculating the weighted average cost of capital) You are working as a consultant to the Lulu Athletic Clothing Company, and you have been asked to compute the appropriate discount rate to use in the evaluation of the purchase of a new warehouse facility. You have determined the market value of the firm's current capital structure (which the firm considers to be its target mix of financing sources) as follows:B To finance the purchase, Lulu will sell 20-year bonds with a...
---Jeremy Publishing Company is trying to calculate its cost of capital for use in a capital budgeting decision. Mr. Mouthwash, the vice-president of finance, has given you the following information and asked you to compute the weighted average cost of capital. The company currently has outstanding a bond with an 6.0 percent coupon rate and a convertible bond with a 3.0 percent rate. The firm has been informed by its investment dealer, John Travolta, and Company, that bonds of equal risk...
(Weighted average cost of capital) Crypton Electronics has a capital structure consisting of 40 percent common stock and 60 percent debt. A debt issue of $1,000 par value, 6.0 percent bonds that mature in 15 years and pay annual interest will sell for $975. Common stock of the firm is currently selling for $30.00 per share and the firm expects to pay a $2.25 dividend next year. Dividends have grown at the rate of 5.0 percent per year and are...
Weighted average cost of capital) Crypton Electronics has a capital structure consisting of 40 percent common stock and 60 percent debt. A debt issue of $1 comma 000 par value, 6.0 percent bonds that mature in 15 years and pay annual interest will sell for $975. Common stock of the firm is currently selling for $30.00 per share and the firm expects to pay a $2.25 dividend next year. Dividends have grown at the rate of 5.0 percent per year...
6. 6: The Cost of Capital: Weighted Average Cost of Capital The Cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have...
8. Solving for a firm's WACC A firm's weighted average cost of capital (WACC) is used as the discount rate to evaluate various capital budgeting projects. However, remember the WACC is an appropriate discount rate only for a project of average risk. Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address. Consider the case of Green Caterpillar Garden Supplies Green Caterpillar Garden Supplies has a target capital...
15 . Solving for the WACC The weighted average cost of capital (WACC) is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the WACC is an appropriate discount rate only for a project of average risk. Consider the case of Turnbull Company. Turnbull Company has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.10%, and its...
7. Solving for the WACC The weighted average cost of capital (WACC) is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the WACC is an appropriate discount rate only for a project of average risk. Consider the case of Turnbull Company, Turnbull Company has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. It has a before-tax cost of debt of 11.10%, and its cost...
8. Solving for a firm's WACC Aa Aa E A firm's weighted average cost of capital (WACC) is used as the discount rate to evaluate various capital budgeting projects. However, remember the WACC is an appropriate discount rate only for a project of average risk. Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address. Consider the case of Fuzzy Button Clothing Company Fuzzy Button Clothing Company has...
8. Solving for a firm's WACC Aa Aa E A firm's weighted average cost of capital (WACC) is used as the discount rate to evaluate various capital budgeting projects. However, remember the WACC is an appropriate discount rate only for a project of average risk. Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address. Consider the case of Fuzzy Button Clothing Company Fuzzy Button Clothing Company has...