Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

James Company requires capital to be used for investment funding of $ 2,000,000,000, - which consists of several sources of funds. The following is the

James Company requires capital to be used for investment funding of $ 2,000,000,000, - which consists of several sources of funds. The following is the amount of each of these funding sources:
1. Long Term Debt (in the form of bonds)
The amount of funding from the Long-Term Debt is $. 500,000,000, -, with a nominal value of $ 500,000 per sheet. The interest given is 20% per year with a bond term of 5 (five) years. The selling price of the bonds is $ 462,500, - per sheet. The tax assumption is 30%.
2. Preferred Stock
Total funding from preferred share capital is $ 400,000,000, -. The selling price of the preferred stock is Rp. 31,250, - each with a dividend of $ 4,500, - per sheet.
3. Common Stock
The amount of funding from ordinary share capital is $. 1,100,000,000, -. The selling price of the common shares is $ 22,500, - with dividends of $. 3,125, - each sheet in the first year. And it is also known that the growth value is 5%.
From the information above, calculate:
1. Cost of capital from each of the above sources of capital.
2. Cost of capital as a whole or Weighted Average Cost of Capital.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial And Managerial Accounting For MBAs

Authors: Peter D. Easton, John J. Wild, Robert F. Halsey, Mary Lea McAnally

5th Edition

ISBN: 1618532324, 9781618532329

More Books

Students also viewed these Accounting questions

Question

14.5 Describe how accidents at work can be prevented.

Answered: 1 week ago