Question
Zinger Corporation manufactures industrial type sewing machines. Zinger Corp. received a very large order from a few europeans countries. In order to be able to
Zinger Corporation manufactures industrial type sewing machines. Zinger Corp. received a very large order from a few europeans countries. In order to be able to supply these countries with its products,Zinger will have to expand its facilities. Of the required expansion, zinger feels it can raise $75 million internally, through retained earnings. The Firm's optimum capital structure has been 45% debt, 10% preferred stock and 45% equity. The company will try to maintain this capital structure in financing this expansion plan. Currently Zinger's common stock is traded at a price of $20 per share. Last year's dividend was $1.50 per share. The growth rate is 8%. The company's preferred stock is selling at $50 and has been yielding 6% in the current market. Flotation costs have been estimated at 8% of common stock and 3% of preferred stock. Zinger Corp. has bonds outstanding at 10%, but its investment banker has informed the company that interest rates for bonds of equal risk are currently yielding 9%. Zinger's tax rate is 46%. Zinger's cost of debt is 4.86%; their cost of preferred stock is 6.19%, and their cost of common equity is 16.1%. Calculate the weighted average cost of capital for Zinger Corporation.
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