Question

Crypton Electronics has a capital structure consisting of percent common stock and percent debt. A debt issue of ​$ par​ value, percent bonds that mature in years and pay annual interest will sell for ​$. Common stock of the firm is currently selling for ​$ per share and the firm expects to pay a ​$ dividend next year. Dividends have grown at the rate of percent per year and are expected to continue to do so for the foreseeable future. What is​ Crypton's cost of capital where the​ firm's tax rate is ​percent?

Answer 1

A. After-cost of debt 4.20%

B. Cost of common equity 12.15%

C. Cost of capital 7.02%

Explanation:.

A. Calculation to determine the After-cost of debt

After-cost of debt =RATE(15,5.8%*1000,-980,1000)*(1-30%)

After-cost of debt =4.20%

Therefore After-cost of debt is 4.20%

b) Calculation to determine cost of common equity

Cost of common equity=2.17/29.12+4.7%

Cost of common equity=12.15%

Therefore Cost of common equity is 12.15%

c) Calculation to determine cost of capital

Cost of capital=(4.20%*63%)+(12.15%*36%)

Cost of capital=7.02%

Therefore Cost of capital is 7.02%