Firm capital funding should be debt financing


The Gravity Spectrum employs a combination of common stock, preferred stock, and debt financing. The company desires preferred stock to represent 8 percent of the total financing. It also desires to structure the firm in manner that will produce a weighted average cost of capital of 7.9 percent. The aftertax cost of debt is 5 percent, the cost of preferred is 8.7 percent, and cost of common stock is 11 percent. What percentage of the firm's capital funding should be debt financing?

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Finance Basics: Firm capital funding should be debt financing
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