COST OF CAPITAL ASSIGNMENT

STEPHANIES CAJUN FOODS, INC NEEDS TO DETERMINE THEIR COST OF CAPITAL FOR CAPITAL BUDGETING PURPOSES. THEY HAVE ASSEMBLED THE FOLLOWING INFORMATION:

MARKET PRICE OF OUTSTANDING BONDS 95

COUPON RATE SEMI-ANNUAL PAYMENTS 11.0%

MATURITY VALUE $ 1,000

YEARS TO MATURITY 25

FLOTATION COSTS 2%

CORPORATE TAX RATE 21%

MARKET PRICE OF OUTSTANDING PREFERRED $ 50

PAR VALUE $ 25

DIVIDEND (PERCENTAGE OF PAR) 10%

FLOTATION COSTS 1%

MARKET PRICE OF COMMON STOCK $ 60

CURRENT STOCK DIVIDEND $ 7.50

GROWTH RATE 4.0%

FLOTATION COSTS 5.0%

TARGET CAPITAL STRUCTURE

BONDS 10.00%

PREFERRED STOCK 20.00%

COMMON STOCK 30.00%

RETAINED EARNINGS 40.00%

THE CURRENT CAPITAL STRUCTURE, BASED ON BOOK VALUES, APPEARS AS FOLLOWS:

BONDS $ 20,000,000

PREFERRED STOCK 1,000,000

COMMON STOCK (PAR $10) 30,000,000

RETAINED EARNINGS 80,000,000

CALCULATE: A) THE COMPONENT COSTS OF CAPITAL

B)THE WEIGHTED AVERAGE COST OF CAPITAL AT BOOK VALUE WEIGHTS

C)THE WEIGHTED AVERAGE COST OF CAPITAL AT MARKET VALUE WEIGHTS

D)THE WEIGHTED AVERAGE COST OF CAPITAL AT TARGET VALUE WEIGHTS