Problem 11-29 Marginal cost of capital (LO11-5) The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee's current capital structure calls for 50 percent debt. 20 percent preferred stock, and 30 percent common equity Initially. common equity will be in the form of retained earnings (K) and then new common stock. The costs of the various sources of financing are as follows debt after-tax) 6.2 percent, preferred stock, 20 percent retained earnings, 130 percent, and new common stock 14.4 percent o, What is the initial weighted average cost of capital? (Include debt, preferred stock and common equity in the form of retained earnings. *) (Do not round Intermediate calculations, Input your answers as a percent rounded to 2 decimal places) Weighted Cost Debt Preferred stock Comment Weighted average cost of capital 0001 Brook's Window Shields Inc. is trying to calculate its cost of capital for use in a capital budgeting decision Mr Glass, the vice-president of finance, 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 11.5 percent coupon rate and another bond with a 8.4 percent coupon rate: The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield 12.5 percent The common stock has a price of $84 and an expected dividend (Oy) of 53 60 per share. The firm's historical growth rate of earnings and dividends per share has been 60 percent, but security analysts on Wall Street expect this growth to slow to 5 percent in future years The preferred stock is selling at $80 per share and carries a dividend of 56 20 per share. The corporate tax rate is 40 percent. The flotation cost is 38 percent of the selling price for preferred stock. The optimum capital structure is 30 percent debt. 30 percent preferred stock and 40 percent common equity in the form of retained earnings a. Compute the cost of capital for the Individual components in the capital structure (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost Det Preferred stock Common equity b. 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 % Debt Preferred stock Common equity Weighted average cost of capital 0.00%