1. As a financial analyst for the JA60 Ltd, you have been given the assignment

of determining the companys cost of capital. Toward that end, the following

information has been collected:

Present Capital Structure

Source of Capital Par/Maturity Total Book ValueMarket Value

Debt (8%, 15 year) $1,000 $8,000,000 $1,200 per bond

Preferred stock (8%) $100 $2,000,000$120 per share

Common stock $10 $10,000,000$20 per share

. The companys last common dividend was $0.97. The year before that, a dividend of

$0.91 was paid. The growth rate for dividends is expected to be constant for the

foreseeable future. The companys tax rate is 35%.

a. Determine the weighted average cost of capital using market-value weights

b. The directors of JN60 have been told that they can reduce the overall cost of

capital by issuing more long-term debt. Write a memo (in good form) outlining the

extent to which increasing the gearing of the company could have the desired

effect.

1. As a financial analyst for the JA60 Ltd, you have been given the assignment of determining the company's cost of capital. Toward that end, the following information has been collected: The company's last common dividend was $0.97. The year before that, a dividend of $0.91 was paid. The growth rate for dividends is expected to be constant for the foreseeable future. The company's tax rate is 35%. a. Determine the weighted average cost of capital using marketvalue weights b. The directors of JN60 have been told that they can reduce the overall cost of capital by issuing more long-term debt. Write a memo (in good form) outlining the extent to which increasing the gearing of the company could have the desired effect