Principles of accounts

timer Asked: Mar 8th, 2016

Question description

The Expanding Capital Corporation has a current capital structure of $15 million in secured bonds paying 6.5% annual interest, $10 million in preferred stock with a par value of $50 per share and an annual dividend of $3.80 per share, and common stock with a book value of $75 million.  It is about to issue new debentures in the amount of $10 million paying 7.5% annual interest.  Its CFO says its marginal tax rate is 30% and its cost of common equity capital is 12%.  Calculate the company’s Weighted Average Costs of Capital for the following:

  1. Before the new bond issue

2.  After the new bond issue

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