Reactive Power Generation has the following capital structure. Its corporate tax rate is 21%. Security Market...

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Question

Reactive Power Generation has the following capital structure. Its corporate tax rate is 21%. Security Market...

Reactive Power Generation has the following capital structure. Its corporate tax rate is 21%.

Security	Market Value			Required Rate of Return
Debt	$	20	million		4	%
Preferred stock		10	million		6
Common stock		50	million		10

What is its WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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Answer 1

Answer #1

After-tax return of debt=4*(1-tax rate)

=4*(1-0.21)=3.16%

Total value=(20+10+50)=$80 million

WACC=Respective return*Respective weight

=(20/80*3.16)+(10/80*6)+(50/80*10)

=7.79%

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Answer 2

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