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Use the information provided at the bottom of the sheet to calculate the cost of capital of XYZ Corporation to be used to discount the
Use the information provided at the bottom of the sheet to calculate the cost of capital of XYZ Corporation to be used to discount the stream of cash flows (inflows and outflow). This cost of capital (discount rate) will be used to discount streams of cash and find the net present value (NPV). The NPV is used to determine a choice between different projects.
Calculate the weighted average cost of capital. See the attached Excel file with the particulars.
Weighted Average Cost of Capital | |||||
Instrument | Weight | Rate | Adjusted Rate | Weighted Rate | |
Notes Payable Bank | |||||
Mortgage Loan | |||||
Preferred Stock | |||||
Common Stock | |||||
Weighted Average Cost of Capital | 0.0% | ||||
Compute the cost of capital above based on the following: | |||||
1. Notes payable bank with rate of 8.5% | $2,000,000.00 | ||||
2. Bank mortgage loan with rate of 5.75% | $1,000,000.00 | ||||
3. Preferred stock with coupon rate 11.75% | $500,000.00 | ||||
4. Common stock (Use a rate of 14.0%) | $500,000.00 | ||||
5. Company's tax rate | 33% |
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