FACC 300 Study Guide - Quiz Guide: Preferred Stock, Promissory Note, Capital Structure

• School: McGill University
• Department: Faculty Course
• Course: FACC 300
• Professor: Raad Jassim

Document Summary

A sewage company a tax rate of 35% and the following capital structure: Furthermore, the common shareholders would pay less for the shares because of the more uncertain earnings per share. Thus, the earnings to price ratio would rise from 8 to 12 percent. The cost of capital is the weighted-average cost of all permanent sources of funds. Thus, the cost of the notes payable should be excluded from the calculations: existing cost of capital. Wacc = 4. 16 (0. 10/0. 95) + 7. 45 (0. 20/0. 95) + 8. 0 (0. 65/0. 95) Wacc = 4. 16 (0. 40/0. 95) + 7. 45 (0. 20/0. 95) + 8. 0 (0. 35/0. 95) = 6. 27 : new proportions + new costs. Wacc = 5. 21 (0. 40/0. 95) + 7. 45 (0. 20/0. 95) + 12. 02 (0. 35/0. 95) 2 the earnings to price ratio is an estimate of the existing cost of common equity. The higher ratio represents a higher cost of common equity (12 %). A share just paid a dividend of .