Running Head: WEEK 4 HOMEWORK1Week 4 HomeworkNameInstitutionCourseDateWEEK 4 HOMEWORKQuestion A.The cost of capital associated with the stock of Bad Boy Inc. is the opportunity costthat the company will incur during the investment in its stocks (Le, 2017). The cost of capitalcalculated using WACC is the rate of return Bad Boy Inc. stands to enjoy if should it decides toinvest its funds in the stock assuming the socks will face equal risk (Sim & Wright, 2017). Thecost associated with these stock, the cost of capital, as well as the rate of return inherent to thestock is used to convince investors to invest in the stocks (Herawati et al., 2017)The cost of stocks of Bad Boy Inc. is calculated a followsWACC=r(E) + w(E) + r(P) x w(P) + r(D) x (1-t) x w(D)The formula to calculate coupon rate is as follows:Cost of debt= YTM= Coupon Rate 8.00%Cost of preferred stock can be calculated thusly:Annual Dividend of stock- $2.50Current Stock Price- $25Cost of preferred stock= Dividend/Current PriceCost of preferred stock- 10% = D18/D19Cost of equity can be calculated with the following formula:Using the following variables, the following can be determined rega ...
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