Problem:
United Business Forms' capital structure is as follows:
Debt-35%
Preferred stock-15%
Common equity-50
The aftertax cost of debt is 7 percent, the cost of preferred stock is 10 percent, and the cost of common equity (in the form of retained earnings) is 13 percent.
Calculate United Business Forms' weighted average cost of capital in a manner similar to the chart below:
1 2 3
Cost Aftertax Weights Weighted Costs
Debt ................................................Kd ? ? ?
Preferred stock..................................Kp ? ? ?
Common equity (retained earnings).....Ke ? ? ?
Weighted average cost of capital...........Ka ?