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Estimating weighted cost of capital

Assume the following percentage capital structure is considered optimal for this firm.

Debt .50

Preferred stock .10

Common equity .40

The firm has estimated the after tax cost of each source of funds. Debt costs .07, preferred stock .11, retained earnings .20 and new common stock .22. The firm is operating under conditions of capital rationing and therefore will not sell new stock to the public. What is the weighted cost of capital for this firm?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91619659

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