1. Define the term Cost of capital

2. Why do we calculate a firm's weighted average cost of capital?

3. The Bajan Banana Co. Ltd. plans to maintain its debt structure in the future. If the firm has a 5.5% cost of debt, a 13.5% preferred stock, and an 18% cost of common stock, what is the firm's weighted average cost of capital (WACC)?

The capital structure for the company is provided below:

CAPITAL STRUCTURE ($000)

Bonds $1,083,000

Preferred Stock 268,000

Common Stock 3,681,000

5,032,000