A Dozen Monkeys Ltd. has the following right-hand side of its balance sheet: Debt: 8% coupon, 12 years to maturity Preferred shares: 5% dividend Common shares: 750,000 outstanding Retained earnings $8,000,000 1,000,000 1,500,000 4,500,000 $15,000,000 New debt could be issued to yield 10 percent, with flotation costs netting the firm $970 on each $1,000 bond. Preferred shares would require a current yield of 8 percent, with after tax flotation costs of 4 percent. Common shares currently trade at $15, but new shares would be discounted to to $14.25 to encourage sales. After tax flotation costs on new common shares would be 5 percent. The anticipated dividend growth rate is 6 percent. The expected dividend is $1.50. A Dozen Monkeys Ltd. has a 40 percent tax rate and would require new share capital to fund new investments. Based on market value weightings, calculate Monkey's weighted average cost of capital. Problem 11-36 ILO 3. LO 51 Instructions Solution Enter formulas and data to complete the requirements of this problem. Cost elements: Current debt yield 10.00% Common share price $15.00 Tax rate 40.00% New issue common share price $14.25 Current preferred yield 8.00% Preferred stated divide 5.00% Common share flotation cost Growth rate 5.00% 6.00% Preferred stated capita 1,000,000 Expected dividend $1.50 Preferred flotation cos 4.00% Number of shares outstanding 750,000 Cost elements: Cost of Debt: 6.00% Cost of Preferred FORMULA Cost of Equity FORMULA Capital structure: Market value Weightings Debt FORMULA FORMULA Preferred FORMULA FORMULA Equity FORMULA FORMULA Total 0 0.00% Weighted average cost of capital calculation: Debt Preferred Equity 6.00% FORMULA FORMULA Weighted average cost of capital Conclusion: FORMULA FORMULA FORMULA FORMULA FORMULA FORMULA 0.00%