Weighted Average Cost of Capital
AAA Mining Company needs to determine its cost of capital for capital budgeting purposes. The first has the following information:
Market Price of Outstanding Bonds: $940.00
Coupon Rate: 8.25%
Maturity Value of the Bonds: $1000.00
Years to Maturity: 12
Corporate Tax Rate: 40%
Market Value of Outstanding Preferred Stock: $57.25
Par Value: $100.00
Dividend Rate (Taken on Par): 6%
Market Price of Common Stock: $72.00
Projected Common Stock Dividend: $5.00
Expected Dividend Growth Rate: 6%
Net Proceeds/Share of Sale of New Stock: $66.50
Current Capital structure, based on book values, appears below:
Bonds: $2,500,000
Preferred Stock: $1,500,000
Common Stock ($50 par): $3,700,000
Retained Earnings: $2,300,000
Total Capital: $10,000,000
Calculate the weighted average cost of capital for AAA Mining based on market value weights.
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