Compute the wmcc


Bennett Company is planning to launch a major expansion program which will require $2 million. The firm wants to maintain its current capital structure: debt = 40%, preferred stock = 20%, and common equity = 40%. New bonds will have an after-tax cost of 5.25 percent. New $100 par preferred stock will have a 8 percent dividend yield and will be sold to net the firm $98/share. Common stock with a current market price of $50 can be sold to net the firm $45 per share. The firm currently pays a $2 dividend and plans to increase its dividend at the constant rate of 6 percent per year. The retained earnings available to the expansion program are estimated to be $200,000.

a. To maintain the current capital structure, how much of the capital budget should be financed by external equity?

b. Determine the cost of each individual component.

c. Compute the WMCC.

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Finance Basics: Compute the wmcc
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