Question

# You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity

You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 12.75%. The firm will not be issuing any new stock. What is its WACC?
(Points : 5)
8.98%
9.26%
9.54%
9.83%
10.12%

WACC = (Weight of debt * After-tax cost of debt) + (Weight of preferred * Cost of preferred) + (Weight of common equity * Cost of common equity)

so,

WACC = (0.40 * 0.06) + (0.15 * 0.0750) + (0.45 * 0.1275)

WACC = 0.0926 (9.26%), the answer is 9.26%.

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