Question
MCBs Food Service Company, Inc. needs to determine its after-tax weighted average costs of capital at book value, market value, and target value . The
MCBs Food Service Company, Inc. needs to determine its after-tax weighted average costs of capital at book value, market value, and target value. The following information is provided:
1.From the latest Balance Sheet:
Fund Sources
Bonds, $1,000 Par $ 5,000,000
Preferred Stock, 15,000 shares, $100 Par 1,500,000
Common Stock, 500,000 shares, $12 Par 6,000,000
Retained Earnings 42,000,000
2.Component Costs of Capital
Component After-Tax Cost of Capital
Bonds 7.0%
Preferred Stock 9.3%
Common Stock 11.9%
Retained Earnings 10.8%
3.Market Information
a)Bonds Priced @ 95
b)Preferred Stock Market Price @ $72
c)Common Stock Market Price @ $60
4.Target Weights
Component Target Weights
Bonds 35%
Preferred Stock 10%
Common Stock 15%
Retained Earnings 40%
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