Given the following information Percent of capital structure

Given the following information: Percent of capital structure:

Additional information:

Preferred stock

Common equity

Debt

Additional information:

Corporate tax rate

Dividend, preferred

8.50

Dividend, expected common

2.50

Price, preferred

105.00

Growth rate

Bond yield

9.5

Flotation cost, preferred

3.60

Price, common

75.00

Calculate the weighted average cost of capital for Digital Processing Inc. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)

	Weighted Cost
Debt	0.03	%
Preferred stock	0.02
Common equity	0.04
Weighted average cost of capital	0.09	%

Cost of equity = (Dividend expected /Price of the stock) + Growth rate

Cost of equity = (2.5 /75) + 7%

Cost of equity = 10.333333%

Cost of preferred = Dividend of preferred /(Price of preferred - Flotation cost of preference)

Cost of preferred = 8.5 /(105 - 3.6)

Cost of preferred = 8.382643%

Cost of debt = Bond yield = 9.5%

WACC = Weight of equity x Cost of equity + Weight of preference x Cost of preferred + Weight of debt x Cost of debt x (1-Tax)

WACC = 40% x 10.333333% + 20% x 8.382643% + 40% x 9.5% x (1-34%)

WACC = 8.317862% or 8.32%

Given the following information: Percent of capital structure: Additional information: Preferred stock 20 % Common equity 40 Debt 40 Additional information: Cor

Given the following information Percent of capital structure

Solution

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