Question
The capital structure of company LM is given below: Sources of capital Book value ($ 000)...
The capital structure of company LM is given below:
Sources of capital Book value ($ 000)
Debts 16,000
Preferred stock 4,000
Common stock 10,000
Ret.earn.re) 20,000
Total capital 50,000
The interest rate for debt is 10%, price of preferred stock is
$4 per share, price of common stock is $4.8 per share. Company pays
out dividend $1 per share to common stock and $1.1 to the preferred
stock. The expected growth rate is 6%, corporate -and income tax
rates are 20% and 25% respectively. Calculate and comment the
weighted average cost of capital of the firm.
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