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Long-term Debt
Preferred Stock
Common Equity
Assets Liabilities & Equity
Current assets Current Liabilities
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Capital Structure
Long-term Debt
Preferred Stock
Common Equity
Ch. 12 - Cost of Capital
Kd = kd (1 - T)
After-tax Before-tax Marginal
% cost of = % cost of
Debt Debt
x
1 - tax
rate
Kd = kd (1 - T)
D Dividend
kp = =
Po Price
Cost of Preferred Stock
Recall:
D Dividend
kp = =
Po Price
D Dividend
kp = =
Po Price
D Dividend
kp = =
Po Price
D Dividend
kp = =
NPo Net Price
Cost of Preferred Stock
D Dividend
kp = =
NPo Net Price
8.00
= 74.00 =
Cost of Preferred Stock
D Dividend
kp = =
NPo Net Price
8.00
= 74.00 = 10.81%
Cost of Common Stock
D1
kc = +g
Po
Cost of Internal Equity
D1
kc = +g
Po
D1
kc = +g
Po
D1
knc = NPo + g
Cost of External Equity
D1
knc = NPo + g
Capital
Source Cost Structure
debt 6% 20%
preferred 10% 10%
common 16% 70%
Weighted Cost of Capital
(20% debt, 10% preferred, 70% common)