Question

AllCity Inc. is financed

40​%

with​ debt,

20​%

with preferred​ stock, and

40​%

with common stock. Its​ pre-tax cost of debt is

6​%;

its preferred stock pays an annual dividend of

​$2.75

and is priced at

​$32.

It has an equity beta of

1.4.

Assume the​ risk-free rate is

2​%,

the market risk premium is

7​%,

and​ AllCity's tax rate is

35​%.

What is its​ after-tax WACC?

What is its​ after-tax WACC?

r Subscript wacc=

​(Round to five decimal​ places.)

Answer 1

Particulars Debt market value weights 40% weighted cost 1.56% Preferred stock 20% cost of capital 3.90% 6%*(1-35%) 8.59% [ 2.75/32] 11.80% 0.02+(1.4*0.07) 1.72% common stock 40% 4.72% 7.99875% WACC