Ledbetter Corporation is constructing is cost of capital schedule. The target capital structure is based on the market values of the company's outstanding securities (Hint: Calculate the weights first! It has 22,500 bonds outstanding with a 12% coupon, paid semiannually, a current maturity of 20 years, and sell for $1020 each. The firm could sell $100 preferred stock which pays a 12 % annual dividend for $95 each. Ledbetter currently has 225,000 shares of preferred stock outstanding. Ledbetter is a constant growth firm which just paid a dividend of $2.00 on its common stock which sells for $27 per share, and has an expected growth rate of 10%. There are currently 2,500,000 shares of common stock outstanding. The firm's marginal tax rate is 40%. Please estimate their weighted average cost of capital Target Capital Structure Debt 22,500 bonds$1020 each 22,950,000 P.S. 225,000 shares$95 C.S. 2,500,000 shares $27 Total Market Value of the Firm Wd 22,950,000/11,825,000.21 Wps 21,375,000/111,825,000 Wcs 67,500,000/111,825,000 21,375,000 67,500,000 111,825,000 19 60 Cost of Debt N=40 Solve for I/Y = 5.87% times 2 = 11.74% PV =-1020 PMT 60 FV 1000 Kd Cost of Preferred Stock Dividend 12 S100 S12 KpsDps/Pps 12/95 12.63% = Cost of Common Stoclk Kcs 2(1.10)/27 18, 15% +.10 WACC Debt .21 * P.S. .19* C.S. 60* 11.74% (6)-7.04%-1.479 12.63% 18.15% WACC 2.400 10.89 14.77 WACC 14.77