Assuming that the market value weights of these capital sources are 30% bonds, 6
ID: 2683881 • Letter: A
Question
Assuming that the market value weights of these capital sources are 30% bonds, 60% common equity and 10% preferred equity, what is the weighted cost of capital of the firm? (10 pts)Year Cash Flow PV Factor Present Value
1 $1,100,000 1/1.15 $ 956,522
2 $1,450,000 1/1.15^2 $ 1,096,408
3 $1,300,000 1/1.15^3 $ 854,771
4 $ 950,000 1/1.15^4 $ 543,166
PV of Inflows $ 3,450,867
PV of Outflows (3,000,000)
NPV $ 450,867
Year Cash Flow PV Factor Present Value
1 1,100,000 1/1.2238 $ 898,840
2 1,450,000 1/1.2238^2 $ 968,160
3 1,300,000 1/1.2238^3 $ 709,271
4 $ 950,000 1/1.2238^4 $ 423,528
PV of Inflows $2,999,798
PV of Outflows $(3,000,000)
NPV $ (202)
Explanation / Answer
Not enough information, you have not mentioned the cost of equity, cost of debt and cost of prefered capital. These information are needed to calculate the WACC. Also tax rate is required. Please check the question and repost it.