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Global Technology’s capital structure is as follows: Debt 50 % Preferred stock 35 Common equity 15 The aftertax cost of debt is 6.50 percent; the cost of preferred stock is 10.50 percent; and the cost of common equity (in the form of retained earnings) is 13.50 percent. Calculate the Global Technology’s weighted cost of each source of capital and the weighted average cost of capital

Respuesta :

Answer:

WACC is 12.46%

Explanation:

The weighted cost of each capital source is the % weight of a capital source divided by the total % weight,which is 100% multiplied by the cost of that source of funding as shown below:

Weighted cost of debt=50%/(50%+35%+15%)*13.50%=6.75%

weighted cost of preferred stock=35%/(50%+35%+15%)*10.50%=3.68%

weighted cost of equity =15%/(50%+35%+15%)*13.50%=2.03%

Weighted average cost of capital is the sum of the weighted cost of each capital source computed above.

WACC=2.03%+3.68%+6.75%=12.46%

The weighted average cost of capital for Global Technology is 12.46%

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