Maharlika Fund has a target capital structure that consists of 30% debt, 50% common equity, and 20% preferred stock. The prevailing tax rate is 30 percent. The company has projects in which it would like to invest with costs that total P2,000,000. TBI has a plowback ratio of 70 percent. Its net income for this year is P2,000,000. Maharlika Fund is keen on reinvesting this portion of its earning to the prospective projects. The forecasted dividend next year is P5, the current stock price is P80, and the growth rate of the company is 11%. If the company raises capital through a new equity issuance, the flotation costs are 10%. The cost of preferred stock is 9% and the after-tax cost of debt is 7%.
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Maharlika Fund has a target capital structure that consists of 30% debt, 50% common equity, and 20%
What is the weighted average cost of capital?
(Note: The format of the answer should be in % rounded off into two decimal places. Example: 19.05%, 16.90%)
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