Homework Answers
Answer to Question 1.
Weight of Debt = $750,000 / $1,708,000
Weight of Debt = 0.4391
Weight of Preferred Stock = $78,000 / $1,708,000
Weight of Preferred Stock = 0.0457
Weight of Equity = $880,000 / $1,708,000
Weight of Equity = 0.5152
After Tax Cost of Debt = 10.2% * (1 – 0.25)
After Tax Cost of Debt = 7.65%
WACC = (Weight of Debt * After Tax Cost of Debt) + (Weight of
Preferred Stock * Cost of Preferred Stock) + (Weight of Equity *
Cost of Equity)
WACC = (0.4391 * 0.0765) + (0.0457 * 0.1140) + (0.5152 *
0.1430)
WACC = 0.1125
or WACC = 11.25%
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