1.Assume the following and determine what the firm's weighted average cost of capital is:

-Vic-farmer's stock price rises such that it is sold at 3.0 times its book value and the required rate increased to 14 per cent; and

-The market value of the bonds are 1.5 times their book value and yield to maturity is 8 percent. (4 marks)

Answer -

Market Value

ComponentBalance Sheet $ProportionAfter-Tax CostProduct

Debentures26,63623.27%5.60% (8%*70%)1.30%

(1.5 marks)

Common equity87,80476.73%14%10.74 %

(1.5 marks)

Sum114,44012.04%

(1 mark)

QUESTION - What are the calculations in order to get (1.30%) & (10.74%) ???