A-Rod Manufactuning Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Mr Jeter, the vice president of finance, has given you the following information and has asked you to compute the weighted average cost of capital The company currently has outstanding a bond wth a 9.6 percent coupon rate and another bond with an 72 percent rate. The firm has been informed by its investment banker that bonds of equal nisk and credit rating are now selling to yieid 10.5 percent. The common stock has a price of $50 and an expected dividend (D1) of $170 per share. The historical growth pattern (g) for dividends is as follows: $125139154170 The preferred stock is selling at $70 per share and pays a dividend of $6.60 per shale. The corporate tax rate is 30 percent. The flotation cost is 20 percent of the seling paice for preferred stock. The optimum capital structure for the firm is 25 percent debt, 10 percent preferred stock, and 65 percent common equity in the form of retained earnongs. Q. Compute the average historical growth rate Note: Do not round intermedlate calculations. Round your answer to the nesrest whole percent and use this value as g. Input your answer os o whole percent. b. Compute the cost of capital for the individual components in the capital structure Note: Use the rounded whole percent computed in part a for g. Do not round any other intermediate calculations. Input your enswers es o percent rounded to 2 decimal places. A-Rod Manufactuning Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Mr Jeter, the vice president of finance, has given you the following information and has asked you to compute the weighted average cost of capital The company currently has outstanding a bond wth a 9.6 percent coupon rate and another bond with an 72 percent rate. The firm has been informed by its investment banker that bonds of equal nisk and credit rating are now selling to yieid 10.5 percent. The common stock has a price of $50 and an expected dividend (D1) of $170 per share. The historical growth pattern (g) for dividends is as follows: $125139154170 The preferred stock is selling at $70 per share and pays a dividend of $6.60 per shale. The corporate tax rate is 30 percent. The flotation cost is 20 percent of the seling paice for preferred stock. The optimum capital structure for the firm is 25 percent debt, 10 percent preferred stock, and 65 percent common equity in the form of retained earnongs. Q. Compute the average historical growth rate Note: Do not round intermedlate calculations. Round your answer to the nesrest whole percent and use this value as g. Input your answer os o whole percent. b. Compute the cost of capital for the individual components in the capital structure Note: Use the rounded whole percent computed in part a for g. Do not round any other intermediate calculations. Input your enswers es o percent rounded to 2 decimal places
