Computation of after-tax cost of debts and weighted average cost of capital
The capital structure of Dartex Industries and the pretax cost of capital for each component are shown in the table below. Calculate Dartex's weighted average cost of capital given that their marginal tax rate is 34 percent.
Dartex Industries (figures in $000s)
Component
|
Value
|
Cost of Capital
|
Bonds
|
$2,000
|
7.50%
|
Preferred stock
|
$1,000
|
15.00%
|
Common stock
|
$5,000
|
20.00%
|
Total
|
$8,000
|
|