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Homework answers / question archive / Royce Manufacturing must calculate its weighted cost of capital in order to evaluate new investment opportunities
Royce Manufacturing must calculate its weighted cost of capital in order to evaluate new investment opportunities. The firm's current capital structure, which it considers optimal, consists of 40% debt, 10% preferred stock and 50% common equity. The firm has determined each component cost of capital, as follows: Debt Preferred stock Common stock After-Tax Cost 8.4% 14.0% 15.2% Calculate Royce's weighted cost of capital. 2. What is the after-tax cost of preferred stock for Gateway, a computer company, which wants to sell 25 million shares of $9.00 participating preferred stock to the public for $100 per share?
