Task: Weighted average cost of capital
Global Technology's capital structure is as follows:
Debt 35%
Preferred stock 15
Common equity 50
The after-tax cost of debt is 6.5 percent; the cost of preferred stock is 10 percent; and the cost of common equity (in the form of retained earnings) is 13.5 percent
Calculate Global Technology's weighted average cost of capital.
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Cost (after-tax)
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Weights
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Weighted Cost
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Debt
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Kd
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7.05%
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30%
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2.12%
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Preferred stock
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Kp
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10.94
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10
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1.09
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Common equity (retained earnings)
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Ke
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12.00
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60
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7.20
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Weighted average cost of capital
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Ka
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10.41%
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