1. Why do firms have different capital structures and how does capital structure influence a firm’s weighted average cost of capital?
2. What are the basic sources of financing included in a firm’s capital structure? Specifically, what financing sources are excluded from the firm’s capital structure when calculating firm WACC?
3. (Weighted average cost of capital) The target capital structure for JT Industries is 40 percent common stock, 10 percent preferred stock, and 50 percent debt. If the cost of common equity for the firm is 18 percent, the cost of preferred stock is 10 percent, the before-tax cost of debt is 8 percent, and the firm’s tax rate is 35 percent, what is JT’s weighted average cost of capital?