Bleakly Enterprises has a capital structure of 56 percent common stock, 4 percent preferred stock, and 40 percent debt. The flotation costs are 3.7 percent for debt, 4.8 percent for preferred stock, and 5.2 percent for common stock. The corporate tax rate is 21 percent. What is the weighted average flotation cost?

Question

Quizplus · Accepted Answer

The weighted average flotation cost is calculated by multiplying the proportion of each type of capital by its respective flotation cost and then summing these products. The calculation is as follows:- Common stock: 56% * 5.2% = 2.912%- Preferred stock: 4% * 4.8% = 0.192%- Debt: 40% * 3.7% = 1.48%Adding these together gives 2.912% + 0.192% + 1.48% = 4.584%, which rounds to 4.58%.

Bleakly Enterprises Has a Capital Structure of 56 Percent Common