Cost of Capital

By
Giday G. (Ph.D in Finance)
Assistant Professor
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 Learning Objectives
• Understand the basic concept and sources of capital
associated with the cost of capital.

• Determine the cost of long-term debt, and explain why

the after-tax cost of debt is the relevant cost of debt.

• Determine the cost of preferred stock.

• Calculate the cost of common equity stock, and convert

it into the cost of retained earnings and the cost of new
issues of common stock.
• Calculate the firm’s weighted average cost of capital
(WACC) and understand its rationale, use, and
limitations.
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 Flow of Presentation
• Meaning of Cost of Capital
• Basic Definitions/Terms
• The Cost of Debt
• The cost of Preferred Stock
• The Cost of Common Equity
• Weighted Average Cost of Capital (WACC)

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 Practical Case: Insights
• The Cost of Capital—Intuitively
• Suppose an entrepreneur plans to open a business that
will earn 12% on invested money. If he has no money of
his own, but can borrow at 15%, does it make sense to
start the business? Clearly it doesn’t. The enterprise is
certain to lose money, because it will pay more for
funds than it will earn using them. The business makes
sense only if the entrepreneur can borrow at a rate
below 12%. This is the idea behind the cost of capital.
We shouldn’t pay more for a resource than it earns. In
this simple case, the cost of capital is just the rate at
which borrowed funds are available. In reality firms
have more than one kind of capital and each has a
different cost. The cost of capital is a single rate that
represents an average of those costs.
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 Capital Components
• “Capital” refers to money acquired for use over long periods
of time. The funds are generally used for getting businesses
started, acquiring long-lived assets, and otherwise doing the
kinds of projects we studied in capital budgeting.
• Capital can be divided into components according to the way
the money was raised.
• The two basic classifications are debt and common equity.
– Debt is borrowed money raised through loans or the sale of bonds.
– Common equity indicates an ownership interest, and comes from the
sale of common stock or from retaining earnings.

• A third kind of capital comes from the sale of preferred stock.

Preferred can be thought of as a cross between debt and
equity, because it has some of the characteristics of each.
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5
Con’t…
• Legally it’s a kind of equity, but for many financial
purposes it behaves more like debt. Because of this
hybrid nature, preferred is sometimes combined with
one of the other components for purposes of analysis.

• However, preferred stock offers investors a return which

is generally different from that of either debt or common
equity. Therefore, in the context of the cost of capital, it’s
handled separately as a third component.

• In the rest of this chapter we’ll refer to common equity

simply as equity and preferred equity as preferred stock
or just preferred.
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The Cost of Capital: An overview
• Firms will make investments today expecting a set
of cash inflows in the future.

• To finance (undertake) such projects firms will raise

funds from internal and external sources. In doing
so they will incur costs and such costs are known as
cost of capital.

• Cost of capital refers to the weighted average costs

of different components of financing used by the
firm to fund its financial requirements.
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Con’t…
• A company’s cost of capital is the average rate it
pays for the use of its capital funds. That rate
provides a benchmark against which to measure
investment opportunities in the context of capital
budgeting.

• The idea is very straightforward. No one should

invest in any project that will return less than the
cost of invested funds. Because a firm’s cost of
capital is the best estimate of the cost of any money
it invests, it should never take on a project that
doesn’t return at least that rate.
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 Con’t…
• Cost of capital is the weighted average of the required
returns of the securities that are used to finance the firm.
We refer to this as the firm’s Weighted Average Cost of
Capital, or WACC.

✓ WACC is useful in a number of settings:

• WACC is used to value the firm.
• WACC is used as a starting point for determining the
discount rate for investment projects the firm might
undertake.
• WACC is the appropriate rate to use when evaluating
performance, specifically whether or not the firm has
created value for its shareholders.
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 THE LOGIC OF THE WEIGHTED AVERAGE COST OF
CAPITAL (WACC)
• The items on the right side of a firm’s balance sheet—
various types of debt, preferred stock, and common
equity—are called capital components.

• Any increase in total assets must be financed by an

increase in one or more of these capital components.

• The cost of capital of each source of capital is

known as component, or specific cost of capital.

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 Should we focus on historical (embedded)
costs or new (marginal) costs?
• The cost of capital is used primarily to make decisions which
involve raising and investing new capital. So, we should focus on
future cost or marginal costs.

• Marginal cost is the new or the incremental cost that the firm
incurs if it were to raise capital now, or in the near future.

• The historical cost that was incurred in the past in raising

capital is not relevant in financial decision-making.
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 How can the firm raise capital?
Long-Term
Capital

Long-Term Preferred Common

Debt Stock Stock

Retained New Common

Earnings Stock

• Each of these offers a rate of return to investors.

• This return is a cost to the firm.
• “Cost of capital” actually refers to the weighted cost of
capital - a weighted average cost of financing sources.
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• The cost of capital is the return that must be
provided for the use of an investor’s funds.

• If the funds are borrowed, the cost is related to

the interest that must be paid on the loan.

• If the funds are equity, the cost is the return that

investors expect, both from the stock’s price
appreciation and dividends.

13
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 Basic Definitions
✓ KdB=Interest rate on the firm’s new debt before-
tax component cost of debt.
✓ KdB(1-T)=After-tax component cost of debt,
where T is the firm’s marginal tax rate.
✓ kp =Component cost of preferred stock.
✓ ks = Component cost of common equity.
✓ WACC=The weighted average cost of capital.
• If a firm raises new capital to finance asset
expansion, and if it is to keep its capital structure
in balance
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 SPECIFIC COST OF CAPITAL
A. The Cost of Debt:
• The cost of debt is the rate of return the firm’s lenders
demand when they loan money to the firm.

• The cost of debt is the cost associated with raising one more birr
by issuing debt instruments (through borrowing).

• These are interest and transaction costs such as bond

printing costs, brokerage commission.

• Cost of Debt is measured by the interest rate or yield paid

to bond holders.

• In other words before tax cost of debt is equal to the yield to

maturity on bond issue.
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 Con’t…
For the issuing firm, the cost of debt is:
✓ The rate of return required by investors,
✓ Adjusted for flotation costs (any costs associated with issuing new
bonds), and
✓ Adjusted for taxes.

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Con’t…
❑We can think of YTM as the discount rate that makes the
present value of the bond’s promised interest and principal
equal to the bond’s observed market price.

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 COST OF DEBT
• Debt Issued at Par INT
18
kd = i =
B0
• Debt Issued at Discount or Premium
(1 −
1
) 1
Bo= INT (1 + YTM ) + M (1 + YTM )t
t

YTM
• Tax adjustment After − tax cost of debt = YTM (1 − T )
– Where
– Bo= Net Proceed of the Bond
– INT= Annual Interest Paid
– YTM= Before Tax Cost of Debt
– M= Redeemable Value of the Bond
– t=Number of periods to maturity
– T= Applicable Tax Rate
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 EXAMPLE
19

Now,

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Approximate Formula for the YTM
Yield to maturity (YTM) = I+ m-v

_____________

m+v

_______ Or

I + (m − v)
____ n ____
0 .4 m + 0 .6 v

Where: I = annual interest payments in dollars

M = par value of the bond

v = market value (net proceeds) from sale of a bond

Where net proceed from sales of the bond= price of the bond minus flotation
cost of selling and issuing the bond

n = number of years to maturity

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 After-tax Before-tax Marginal
% cost of = % cost of x - tax
Debt Debt
1 rate

KdA = kdB (1 - T)

Where: KdA= After Tax Cost of Debt

KdB= Before Tax Cost of Debt
T= Tax Rate
In other words before fax cost of debt is equal to the
yield to maturity on bond issue.

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 Con’t…
• The after-tax cost of debt, YTM (1-T), is the net cost
of debt, which is used to calculate the weighted
average cost of capital (WACC).
• After tax cost of debt = Before tax cost of debt(1- Tax rate)

• Usually the cost of debt is lower than the

cost of common stock and preferred stock
because:
– It is tax deductible
– The required rate of return by debt holders is lower since
investment in debt is of lower risk.

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 Con’t….
• Example 1: X Co. issues a $ 1,000, 8%, 20 year bond
whose proceeds are $940. The tax rate is 40%. What is
the before tax and after tax cost of these bonds?

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 Con’t….
Solution:Example-1

I + (m − v)
Before tax cost = YTM = ____ n ____
0 .4 m + 0 .6 v

Given - Interest = 8%  1000 = $80

M (par value) = 1000

V (net proceeds) = 940

n = 20 years

80 + (100 − 940)
Before tax = _______ 20 _____
0.4(100) + 0.6(940)

= 8.56%

After tax cost of debt = Before tax (1-tax rate)

= 8.56 (1-40 %%)

= 5.14%

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 Con’t…
• Example 2: If ABC Corporation can borrow at an interest rate of
10 percent, and if it belongs to a tax rate of 40 percent, then it’s
after tax-cost of debt will be 6 percent:
Solution: Kd (1-T) = 10% (1-40%) = 10% (1-0.4) =
10% (0.6) = 6.0%

• You should note that the 6 percent after-tax cost of debt in

this example represents the interest rate on new debt, not
that on already outstanding debt; in other words, our
primary concern with the cost of capital is to use it for
capital budgeting decisions like, would a new machine earn
a return greater than the cost of the capital needed to
acquire the machine?

• The rate at which the firm has borrowed in the past is

irrelevant for this kind of decisions.
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 THE COST OF PREFERRED STOCK
• Preferred stock is a source of long-term capital for a firm.
• When a corporation sells preferred stock, it expects to pay
fixed dividends to investors in return for their money
capital.
• The dividend payments are the cost of preferred stock to
the firm.
• Preferred stockholders have preference over common
stock in the payment of dividends and in the
distribution of corporation assets in the event of
liquidation.

• Preference means only that the holders of the preferred

shares must receive a dividend (in the case of an
ongoing firm) before holders of common stock shares
are entitled to anything.
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Con’t….
Cost of Preferred Stock:
KP = Dp__
Pp - F
Where:
Kp = Cost of preferred stock
DP = Dividend payment
Pp = Price of the preferred stock
F = Floatation costs (selling costs) of the preferred cost
Notes:
✓ The formula assumes that the dividend payment (Dp) is
constant and the preferred stock has no special features
like call ability and convertibility.
✓ The cost of preferred stock has no down ward tax
adjustment because preferred dividend payments are not
tax deductible. Thus, the explicit cost of preferred stock is
greater than that of cost debt.
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 Example:
• If Prescott Corporation issues preferred stock, it will pay
a dividend of $8 per year and should be valued at $75
per share. What is the cost of preferred stock for
Prescott?
Cost of Preferred Stock
Dp
kp =Po = Dividend
Net Price

8.00
= 75.00 = 10.67% 28
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 Example:
• Y Corporation issues preferred stock at a
price of Br 100 and incurred floatation costs
of Br 4. The annual dividend payments are
Br 10.50. The cost of this preferred stock is:
Solution

KP =_Dp_
Pp - F
= 10.50 = 10.94%
100-4
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Con’t…
• Note: that this cost of preferred stock is not
adjusted for taxes because the preferred dividend
used in the formula is already an after tax figure –
preferred stock dividends being paid after taxes.
Thus, the explicit cost of preferred stock is greater
than that of debt.

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 Cost of Equity Capital
• Cost of Equity is the expected rate of return by the
equity shareholders.
• Some argue that, as there is no legal for payment,
equity capital does not involve any cost. But it is not
correct.
• Equity shareholders normally expect some dividend
from the company while making investment in shares.
• Thus, the rate of return expected by them becomes the
cost of equity.
• Conceptually, cost of equity share capital may be
defined as the minimum rate of return that a firm must
earn on the equity part of total investment in a project
in order to leave unchanged the market price of such
shares 31
Con’t….
There are two sources of Common Equity:

1) Internal common equity (retained earnings).

2) External common equity (issuing new shares of

common stock ).

Do these two sources have the same cost?

▪ External common equity will cost more to the firm
than Internal common equity.
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 Cost of Internal Equity
• Since the stockholders own the firm’s retained
earnings, the cost is simply the stockholders’ required
rate of return. Why?
• If managers are investing stockholders’ funds,
stockholders will expect to earn an acceptable rate of
return.
• The reason we must assign a cost of capital to retained
earnings involves the opportunity cost principle.
• Cost of Internal Equity = opportunity
cost of common stockholders’ funds.
An opportunity cost:
The rate of return investors could earn elsewhere
on projects with the same risk and capital structure
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• There are two ways of estimating the cost of
retained earnings:
1. Divided Discount Model [DDM]
•Dividend Discount Model (DDM):
✓General Assumptions:
o Dividends are paid annually
o The first dividend is received one year after the stock is
bought.

2. Free Cash Flow Models (Reading Assignment)

✓ Capital Asset Pricing Model (CAPM), and
✓ Bond-yield-plus-risk-premium approach
•

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 Basic Terms
• D0= is the most recent dividend, which has been
already paid;
• D1= is the first dividend expected, and it will be paid at
the end of this year;
• D2= is the dividend expected at the end of two years;
and so forth.
• Dt= Dividend the stockholder expects to receive at the
end of Year t.
• Po/Vcs= Intrinsic Value or market price of the stock today.
• g= expected growth rate in dividends.
✓ If dividends are expected to grow at a constant rate, g is also
equal to the expected rate of growth in earnings and in the
stock’s price. Different investors may use different g’s to
evaluate a firm’s stock, but the market price, Po, is set on the
basis of the g estimated by marginal investors.
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 Con’t…
• Rcs or Kcs= Minimum acceptable, or required, rate of return
on the stock, considering both its riskiness and the returns
available on other investments.
• D1/P0= expected dividend yield on the stock during the
coming year.
✓ If the stock is expected to pay a dividend of D1= $ 1 during
the next 12 months, and if its current price is P0= $ 10, then
the expected dividend yield is $ 1/$ 10 = 10%. So

• Value of the common stock =

• Which is the general formula for the valuation of

a common stock.
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Con’t….
✓ The above general formula indicates that we are
discounting:
– the dividend at the end of the first year, D1, back one year;
– the dividend in the second year, D2, back two years;
– the dividend in the nth year back n years; and
– the dividend in infinity back an infinite number of years.
✓ The required rate of return is kcs.

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 Common Stock Valuation Models
➢ Valuation of Stocks with:
1. Zero Growth dividends:
• DPS remains constant forever, implying that dividend
growth rate (g) is nil (the zero growth model).

2. Constant Growth dividends:

• DPS grows at a constant rate per year forever (the constant
growth model).

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 3. Supernormal / Non-constant dividends Growth
• DPS grows at a constant rate for a finite period, followed
by a constant normal rate of growth forever thereafter. (the
two-stage model).

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 Con’t…
4. The H-model:
• DPS, currently growing at an above-normal rate,
experiences a gradually declining rate of growth for a
while. Thereafter, it grows at a constant normal rate (the H-
model).

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 A. Constant Dividend Model/Zero Dividend Growth Model
-Under this method the dividend payment pattern remains
constant over time. It is the simplest approach to dividend
valuation. In terms of the notation already introduced,
D1 = D2 =……… = D∞

• Zero growth stock is a common stock whose future dividends

remain constant, g = 0. So, all future expected dividends will be
equal, called perpetuity.
• P0 = D
kcs

• When we solve for kcs =

D
P0
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 Con’t…
Example:
• A corporation pays a dividend of $6 per year
on each share of its common stock.
✓Compute the intrinsic value of the stock if the
investor's required rate of return is 12%
✓If the stocks are traded in the market for $60 a
share, is this a desirable investment for the
investor?
✓If the investor purchased the stock for $45, what is
the stock's required rate of return?
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 B. Constant Dividend Growth Model
• It is also known as normal growth model or Gorden Model
in which future dividends are expected to be grow at a
uniform rate, g. Hence, Dt = D0(1+g)t . Based on this, P0 will
be determined as follows.
This is a model in which the value of the stock is estimated to be the present value of
the dividends on the stock growing at a constant rate i.e.

D1 D2 D3 D
Po = + + +-----------+
(1 + ks)1 (1 + ks)3 (1 + ks)3 (l + ks)
∞
𝐷𝑡
𝑃0 =
(1 + 𝐾𝑠 )𝑡
𝑡=1

Here 𝑃0 is the current price of the stock; 𝐷𝑡 is the dividend expected to be paidat the
end of Year 𝑡; and 𝐾𝑠 is the required rate of return.

The above equation can be approximated using the growing perpetuity formula as:

D1
Po = , where KS> g
ks − g

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 Con’t….
• The intrinsic value of common stock (Po) = Do (1 + g )
( Ks − g )
D1
Po = (kcs − g ) , where ks > g

Pt =Dt* (1+g)/(r-g)

Where, Do = is the most recent dividend per share

g = is the dividend growth rate
Kcs = is the discount rate which represents the
investor's required rate of return

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 Con’t…
WherePo = price of the stock today

Ks = required rate of return, cost of the equity in our discussion

g = growth rate.
 From the above equation we can compute Ks once we know the price of the stock and
estimated D1 at an expected constant growth rate. Which is as follows:
D1
Ks = +g
Po

Based on the above formula Ks is equal to the expected dividend yield at the end of the first
year plus a constant growth rate (g). The growth rate basically applies to dividends, however
it is also assumed to apply to earnings and stock price over the long term.

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 Con’t…
This model is based on the following assumptions:
1. Dividends grow at a constant annual rate
2. The constant growth rate will continue for an infinite
period
3. The dividend growth rate (g) is less than the investor's
required rate of return (k)
4. There is no explicit resale price
5. The dividend, D1, is positive that is, D1>0
Examples:
• A corporation's common stock pays a current dividend of
$6; the dividend is expected to grow at a rate of 2% per
year indefinitely:
✓ Compute the intrinsic value for this stock if the investor's
required rate of return is 10%.
✓ Assume that the stock's current market price is $75, compute
the required rate of return if the stock is bought at this price.
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 Con’t…
✓ What if the dividends are expected to decline each
year? That is, what if g is negative? We can still use the
Dividend Valuation Model, but each dividend in the
future is expected to be less than the one before it.

✓ For example, suppose a stock has a current dividend of

$2 per share and the required rate of return is 10%. If
dividends are expected to decline 6% each year, what is
the value of a share of stock today? We know that D0 =
$2, rcs = 10%, and g = -6%. Therefore,

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• Example: The upcoming dividend for ABC
Inc. is $1.75 per share and stock price is $15
per share. The growth rate of dividend is 7%
. given this information, what is ABC’s cost
of new common stock?

D1
ks = +g
P0
=18.67%

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Example: “C” Co.’s shares are being sold for $ 40 per share to day. The company has just
dividend of $4 per share, it is also expected to grow at the annual rate of 6% percent. What is
the cost of equity for this stock?

Solution

D1
Ks = + g
Po

Do(1 + g )
Ks = + g where Do is the recently paid dividend.
Po

4(1 + 6%)
= + 6% = 16.6%
40

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Cost of New Common Stock, or External Equity, Ke
• Companies generally hire an investment banker to
assist them when they issue common stock, preferred stock, or
bonds.
• In return for a fee, the investment banker helps the
company structure, the terms and set a price for the
issue, and then sells the issue to investors.
• The banker’s fees are often referred to as flotation costs,
and the total cost of capital should reflect both the
required return paid to investors and the flotation fees paid to the
investment banker.

• Therefore, the cost of new common equity, Ke, or

external equity, is higher than the cost of retained
earnings, Kre, because of flotation costs involved in
issuing new common stock. 50
 Con’t…
Flotation costs include:
(1) Commissions paid to those selling the common
stocks for the firm,
(2) Printing expenses,
(3) Advertising costs,
(4) Registration fees for government agencies and
(5) Any reduction (discount) from the current market
price of the same type of existing common stocks
introduced.

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• The difference between the cost of retained
earnings and the cost of new common stocks is
called floatation cost adjustment.
ke = D1 + g
NPo

Net proceeds to the firm

after flotation costs! Po(1-%ge of F)

Or:
Ke = D1 +g
Po (1-F)
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Here,
 Ke The cost of new common stock
 D1 is the expected common stock divided for this year,
 Po is prevailing common stock price, and
 F is the percentage flotation cost incurred in selling the new
stock issue.
So, Po (1-F) is the net price per share received by the firm, which
issues the new common stock. If F is provided in birr per share, the
net proceeds of issuing common stock per share will be current
market price of common stock per share less floatation cost per share
(i.e., net proceed= Po - F).

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• Example: The upcoming dividend for ABC Inc.
is $0.576 per share and stock price is $18.43
per share. In addition, the growth rate of
dividend is 10% . given this information, what
is ABC’s cost of new common stock if the
floatation cost is set at 5%?
D1 + g
• ke= Po(1-F)

• ke = $0.576 + 0.10 = 13.29%

$18.43(1-0.05)
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Example: Assume that ABC corporation is currently issuing its new
common stock at Br. 22 per share and this year’s expected common
stock dividend, Br. 1.10 per share, is assumed to grow at a contestant
10 percent rate (g) in all-future years. Assume that ABC Corporation
has flotation costs of 10 percent. Compute the cost of new common
stock for ABC Corporation.
Solution:
Ke = D1 +g
Po (1-F)

= Br. 1.10 + 10%

Br. 22 (1-0.10)

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 Con’t….
• Example: Armon brothers Inc. is attempting to
evaluate the costs of internal and external common
equity. The company’s stock is currently selling for
$62.5 per share. The company expects to pay a
dividend of $5.42 per share at the end of the year,
and it is expected to grow at 5% a year from now
on. Suppose the company expects to net $57.5 per
share on a new share after floatation costs.

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A. What is the firm’s floatation cost?
𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒 − 𝑁𝑒𝑡 𝑝𝑟𝑖𝑐𝑒
𝐹𝑐 =
𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒
62.50 − 57.50
𝐹𝑐 =
62.50
𝐹𝑐 = 8%
B. What is the firm’s cost internal equity (or retained earnings)?
𝐷1
𝐾𝑠 = + 𝑔
𝑃0
5.42
𝐾𝑠 = + 0.05
62.50
𝐾𝑠 = 13.67%

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 C. What is the firm’s cost external equity (or new common
stocks)?
𝐷1
𝐾𝑒 = + 𝑔
𝑃0 (1 − 𝐹)
5.42
𝐾𝑒 = + 0.05
62.50(1 − 0.08)
𝐾𝑒 = 14.43%
D. What is ABC’s floatation cost adjustment?

𝐹𝑙𝑜𝑎𝑡𝑎𝑡𝑖𝑜𝑛 𝑐𝑜𝑠𝑡 𝑎𝑑𝑗𝑢𝑠𝑡𝑚𝑒𝑛𝑡 = 𝐾𝑒 − 𝐾𝑠

𝐹𝑙𝑜𝑎𝑡𝑎𝑡𝑖𝑜𝑛 𝑐𝑜𝑠𝑡 𝑎𝑑𝑗𝑢𝑠𝑡𝑚𝑒𝑛𝑡 = 14.43% − 13.67% = 0.76%

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 Weighted Average Cost of Capital
(WACC)

• Each firm has an optimal capital structure, defined as

that mix of debt, preferred, and common equity that
causes its stock price to be maximized.

• Therefore, a firm will determine its optimal capital

structure and then raise new capital in a manner
designed to keep the actual capital structure on target
over time.

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• The weighted average cost of capital is just the weighted average
cost of all of the financing sources.
WACC= (Wd)(KdB)(1-T) + (Wp)(Kp) + (Ws)(Ks)
k o =k dB (1 − T ) wd + k e we
D E
k o =k dB (1 − T ) + ke
D+E D+E
Three Step Procedure for Estimating Firm WACC
1. Define the firm’s capital structure by determining the
weight of each source of capital.
2. Estimating the Cost of Individual Sources of Capital
3. Calculate a weighted average of the costs of each source of
financing and Summing Up – Calculating the Firm’s WACC.
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• Example: Suppose the cost of debt before tax is 8%,
cost of preferred stock is 10%, and the cost of new
common stock is 12% for Microsoft, which is facing a
35% tax bracket. What is Microsoft’s WACC if it
decides to raise its capital with 20% debt, 35%
preferred stocks, and 45% common stocks?
WACC= (Wd)(Kd)(1-T) + (Wp)(Kp) + (Ws)(Ks)
= (0.20)(0.08)(0.65) + (0.35)(0.10) + (0.45)(0.12)
= 0.0994
=9.94%

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 Example:

After Tax Capital

Source Cost Structure
1. ebt 6% 20%
preferred 10% 10%
common 16% 70%
WACC= 0.20 (6%) + 0.10 (10%) + 0.70 (16%)
= 13.4%
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• Example: Valie enterprises, inc. has compiled
the following information regarding its
financing:

Type of capital Book Value Market Value After-tax cost

Long-term debt $3,000,000 $2,800,000 4.8%
Preferred stock $102,000 $150,000 9.0%
Common stock $1,108,000 $2,500,000 13.0%
$4,210,000 $5,450,000
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A. What is weighted average cost of capital
using the book values?

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B. What is weighted average cost of capital
using the market values?

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~~End~~

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