A-Rod Manufacturing Company is trying to calculate to cost of capital for use in making a capital budgeting decision. Mr.Jeter, the vice-president of france, has given you the following information and has as you to compute the weighted average cost of capital The company currently has outstanding a bond with a 10.9 percent coupon rate and another bond with an 8.5 percent rate. The firm has been informed by its investment banker that bonds of equal risk and cres rating are now saling to yield 11.8 percent. The common stock has a price of $63 and an expected dividend (0) of $183 per share. The storical growth pattern for dividends is as follows: $1.30 The preferred stock is selling at $83 per share and pays a dividend of $7.90 per share. The corporate tax rates 30 percent. The flotation cost is 20 percent of the selling price for preferred stor. The optimal structure for the firm is 25 percent debt, 15 percent preferred stock, and 50 percent common equity in the form of retained earings a. Compute the historical growth rate. (Do not round Intermediate calculations. Round your answer to the nearest whole percent and use this value as input your answer as a whole percent.) Growth rate b. Compute the cost of capital for the individual components in the capital structure (Use the rounded whole answers as a percent rounded to 2 decimal places.) in part a forg. Do not round any other intermediate calculations. Input your c. Calculate the weighted cost of each source of capital and the weighted average cost of capital (Do not round Intermediate calculations, Input your answers as a percent rounded to 2 decimal places.) Weighted Cost Prerred Weighted average cost of capital A-Rod Manufacturing Company is trying to call its cost of capital for use in making a capital budgeting decision Mr. Joter, the vice-president of france, 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 with a 10.9 percent coupon rate and another bond with an 8.5 percent rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield 11.6 percent. The common stock has a price of $63 and an expected dividend (0) of $1.83 per share the historical growth pattern ( for dividends is as follows: The preferred stock is selling at $83 per share and pays a dividend of $7.90 per share. The corporate tax rate is 30 percent. The rotation cost is 2.0 percent of the selling price for preferred stock. The optimal capital structure for the firm is 25 percent del, 15 percent preferred stock, and 50 percent common equity in the form of retained earnings a. Compute the historical growth rate (Do not round Intermediate calculations. Round your answer to the nearest whole percent and use this value as g. Input your answer as a whole percent.) Growth rate Do not round any other intermediate calculations. Input your b. Compute the cost of capital for the individual components in the capital structure (Use the rounded w answers as a percent rounded to 2 decimal places) c. Calculate the weighted cost of each source of capital and the weighted average cost of capital (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places) Weighted cost Preferred stock Common equity Weighted average cost of capital
