1. Weighted average cost of capital
Jackson Technology's capital structure is as follows:
Preferred stock 15
Common equity 50
After-tax cost of debt is 6.5 percent; cost of preferred stock is 10 percent; and cost of common equity (in form of retained earnings) is 13.5 percent. Could you compute Jackson Technology's weighted average cost of capital.
2. How does capital asset pricing model help describe changing costs of capital?
3. Describe in detail the relationship between cost of capital, bond ratings, and capital budgeting decision-making process.