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Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,20,000 shares). R. 80,00,000 Rs. 1,00,00,000 The company has a marginal tax rate of 40 percent and the required return on equity is about 17 percent. The Company's debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm's prosent weighted average cost of capital.?
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Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,2...
Weighted Average Cost of Capital (WACC) Calculation:
To calculate the weighted average cost of capital (WACC), we need to consider the cost of each component of capital (debt, preferred stock, and equity) and their respective weights in the capital structure of the company.
Step 1: Calculate the weight of each component:
The weight of each component is calculated by dividing the value of the component by the total capital structure of the company.
Debt Weight:
Debt Weight = Value of Debt / Total Capital Structure
Debt Weight = Rs 60,00,000 / (Rs 60,00,000 + Rs 20,00,000 + Rs 1,00,00,000)
Debt Weight = Rs 60,00,000 / Rs 1,80,00,000
Debt Weight = 1/3
Preferred Stock Weight:
Preferred Stock Weight = Value of Preferred Stock / Total Capital Structure
Preferred Stock Weight = Rs 20,00,000 / (Rs 60,00,000 + Rs 20,00,000 + Rs 1,00,00,000)
Preferred Stock Weight = Rs 20,00,000 / Rs 1,80,00,000
Preferred Stock Weight = 1/9
Equity Weight:
Equity Weight = Value of Common Stock / Total Capital Structure
Equity Weight = Rs 1,00,00,000 / (Rs 60,00,000 + Rs 20,00,000 + Rs 1,00,00,000)
Equity Weight = Rs 1,00,00,000 / Rs 1,80,00,000
Equity Weight = 5/9
Step 2: Calculate the cost of each component:
Cost of Debt:
The cost of debt is the yield or interest rate the company pays on its debt.
Cost of Debt = 13%
Cost of Preferred Stock:
The cost of preferred stock is the yield or dividend rate the company pays on its preferred stock.
Cost of Preferred Stock = 12%
Cost of Equity:
The cost of equity is the required return on equity, which represents the return expected by the shareholders.
Cost of Equity = 17%
Step 3: Calculate the weighted average cost of capital:
WACC = (Debt Weight * Cost of Debt) + (Preferred Stock Weight * Cost of Preferred Stock) + (Equity Weight * Cost of Equity)
WACC = (1/3 * 13%) + (1/9 * 12%) + (5/9 * 17%)
WACC = 4.33% + 1.33% + 9.44%
WACC = 15.10%
Explanation:
The weighted average cost of capital (WACC) is a financial metric used to measure the average cost of financing a company's operations through various sources of capital. It represents the minimum return the company must generate to satisfy its investors.
In this case, we calculated the WACC by considering the weight and cost of each component of capital: debt, preferred stock, and equity. The weight of each component is calculated by dividing the value of the component by the total capital structure of the company. The cost of each component is the yield or return expected by the investors.
By multiplying the weight and
To calculate the weighted average cost of capital (WACC), we need to consider the cost of each component of capital (debt, preferred stock, and equity) and their respective weights in the capital structure of the company.
Step 1: Calculate the weight of each component:
The weight of each component is calculated by dividing the value of the component by the total capital structure of the company.
Debt Weight:
Debt Weight = Value of Debt / Total Capital Structure
Debt Weight = Rs 60,00,000 / (Rs 60,00,000 + Rs 20,00,000 + Rs 1,00,00,000)
Debt Weight = Rs 60,00,000 / Rs 1,80,00,000
Debt Weight = 1/3
Preferred Stock Weight:
Preferred Stock Weight = Value of Preferred Stock / Total Capital Structure
Preferred Stock Weight = Rs 20,00,000 / (Rs 60,00,000 + Rs 20,00,000 + Rs 1,00,00,000)
Preferred Stock Weight = Rs 20,00,000 / Rs 1,80,00,000
Preferred Stock Weight = 1/9
Equity Weight:
Equity Weight = Value of Common Stock / Total Capital Structure
Equity Weight = Rs 1,00,00,000 / (Rs 60,00,000 + Rs 20,00,000 + Rs 1,00,00,000)
Equity Weight = Rs 1,00,00,000 / Rs 1,80,00,000
Equity Weight = 5/9
Step 2: Calculate the cost of each component:
Cost of Debt:
The cost of debt is the yield or interest rate the company pays on its debt.
Cost of Debt = 13%
Cost of Preferred Stock:
The cost of preferred stock is the yield or dividend rate the company pays on its preferred stock.
Cost of Preferred Stock = 12%
Cost of Equity:
The cost of equity is the required return on equity, which represents the return expected by the shareholders.
Cost of Equity = 17%
Step 3: Calculate the weighted average cost of capital:
WACC = (Debt Weight * Cost of Debt) + (Preferred Stock Weight * Cost of Preferred Stock) + (Equity Weight * Cost of Equity)
WACC = (1/3 * 13%) + (1/9 * 12%) + (5/9 * 17%)
WACC = 4.33% + 1.33% + 9.44%
WACC = 15.10%
Explanation:
The weighted average cost of capital (WACC) is a financial metric used to measure the average cost of financing a company's operations through various sources of capital. It represents the minimum return the company must generate to satisfy its investors.
In this case, we calculated the WACC by considering the weight and cost of each component of capital: debt, preferred stock, and equity. The weight of each component is calculated by dividing the value of the component by the total capital structure of the company. The cost of each component is the yield or return expected by the investors.
By multiplying the weight and
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Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,20,000 shares). R. 80,00,000 Rs. 1,00,00,000 The company has a marginal tax rate of 40 percent and the required return on equity is about 17 percent. The Company's debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm's prosent weighted average cost of capital.?
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Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,20,000 shares). R. 80,00,000 Rs. 1,00,00,000 The company has a marginal tax rate of 40 percent and the required return on equity is about 17 percent. The Company's debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm's prosent weighted average cost of capital.? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,20,000 shares). R. 80,00,000 Rs. 1,00,00,000 The company has a marginal tax rate of 40 percent and the required return on equity is about 17 percent. The Company's debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm's prosent weighted average cost of capital.? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,20,000 shares). R. 80,00,000 Rs. 1,00,00,000 The company has a marginal tax rate of 40 percent and the required return on equity is about 17 percent. The Company's debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm's prosent weighted average cost of capital.?.
Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,20,000 shares). R. 80,00,000 Rs. 1,00,00,000 The company has a marginal tax rate of 40 percent and the required return on equity is about 17 percent. The Company's debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm's prosent weighted average cost of capital.? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,20,000 shares). R. 80,00,000 Rs. 1,00,00,000 The company has a marginal tax rate of 40 percent and the required return on equity is about 17 percent. The Company's debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm's prosent weighted average cost of capital.? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,20,000 shares). R. 80,00,000 Rs. 1,00,00,000 The company has a marginal tax rate of 40 percent and the required return on equity is about 17 percent. The Company's debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm's prosent weighted average cost of capital.?.
Solutions for Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,20,000 shares). R. 80,00,000 Rs. 1,00,00,000 The company has a marginal tax rate of 40 percent and the required return on equity is about 17 percent. The Company's debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm's prosent weighted average cost of capital.? in English & in Hindi are available as part of our courses for B Com.
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Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,20,000 shares). R. 80,00,000 Rs. 1,00,00,000 The company has a marginal tax rate of 40 percent and the required return on equity is about 17 percent. The Company's debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm's prosent weighted average cost of capital.?, a detailed solution for Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,20,000 shares). R. 80,00,000 Rs. 1,00,00,000 The company has a marginal tax rate of 40 percent and the required return on equity is about 17 percent. The Company's debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm's prosent weighted average cost of capital.? has been provided alongside types of Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,20,000 shares). R. 80,00,000 Rs. 1,00,00,000 The company has a marginal tax rate of 40 percent and the required return on equity is about 17 percent. The Company's debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm's prosent weighted average cost of capital.? theory, EduRev gives you an
ample number of questions to practice Debentures Preferred stock R. 60,00,000 Rs 20,00,000 Common stock (3,20,000 shares). R. 80,00,000 Rs. 1,00,00,000 The company has a marginal tax rate of 40 percent and the required return on equity is about 17 percent. The Company's debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm's prosent weighted average cost of capital.? tests, examples and also practice B Com tests.
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