Nper = 5 * 2 = 10
PMT = 1000 * 9%/2 = 45
PV = 940 - 40 = 900
FV = 1000
t = 0.40
After tax cost of debt can be calculated using the following
excel formula:
=RATE(nper,pmt,pv,fv)*2*(1-t)
=RATE(10,45,-900,1000)*2*(1-0.40)
= 7.02%
Cost of preferred stock = Dividend/ Price after flotation
= 15/(210-10)
= 7.5%
Cost of equity = Rf+ Beta*(Rm-Rf)
= 1% + 1.2*(12% - 1%)
= 14.2%
WACC = Sum of (weight * cost of capital)
= (9% * 100/500) + (7.02 * 180/500) + (7.5% * 20/500) + (14.2% *
200/500)
= 1.8% + 2.53% + 0.30% + 5.68
= 10.31%
WACC = 10.31% (Rounded to two decimal places)
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