Crawford Enterprise is an openly detained company located in Arnold, Kansas. The firm initiated as a small tool as well as die shop however grew over its 35-year life to become a leading supplier of metal fabrication equipment used in the farm tractor industry. At the close of 2009 the firm's balance sheet appeared as follows-
Cash $570,000
Accounts Receivable $4,290,000
Inventories $8,300,000 Long-Term Debt $11,860,000
Net Property, Plant, and Equipment $18,497,000 Common Equity $19,797,000
Total Assets $31,657,000 Total Debt and Equity $31,657,000
At present the firm's common stock is selling for a price equal to its book value, and the firm's bonds are selling at par. Crawford's managers estimate that the market requires a 17% return on its common stock the firm's bonds command a yield of maturity of 9% as well as the firm faces a tax rate of 35%.
A). What is Crawford's weighted average cost of capital?
B). If Crawford's stock price were to increase such that it sold at 1.5 times book value causing the cost of equity to fall to 15 percent what would the firms cost of capital be (assuming the cost of debt and tax rate do not change)?