If Bad Boys, Inc. raises capital using 30% debt, 5% preferred stock, and 65% common stock, what is Bad Boys, Inc.’s cost of capital?

Bad Boys, Inc.’s cost of capital is the average of their funding sources, weighted by how much they are willing to pay, in order for them to fund growth and operation. This company’s capital was raised through a combination of 30% debt, 5 preferred shares, and 65 common stocks. We can therefore calculate its cost of capital using the following formula:
If you have debt: Interest rate x 30% = Cost
If you are purchasing preferred stock, the cost is equal to Dividend Rate multiplied by (5%)
If you are buying common stock, the cost is equal to Required Return on Equity (65%)
The dividend rate, which is predetermined by the company issuing the security in advance, is based on the borrowed amount and the current market rate.
Given these parameters, we can determine that Bad Boys, Inc.’s cost of capital will be a combination of these three factors which can be expressed as: Cost of Capital = Interest Rate x (30%) + Dividend Rate x (5%) + Required Return on Equity x (65%). By adding up all three components we can get an estimate for what Bad Boys’ overall cost of capital might be and use it to make better informed decisions regarding potential investments or acquisitions. The information can also be used to determine if certain projects should proceed or not, based on the expected return compared with the average weighted cost of funding them. In the end, costing capital is more accurate when it comes to assessing different options. This includes both equity and debt components as well as current market conditions that may affect future cashflows.