Sam's Souvenir Shop has an after-tax cost of debt of 8 %, a cost of equity...

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Sams Souvenir Shop has an after-tax cost of debt of 8 %, a cost of equity of 12 %, and a cost of preferred stock of 9 %. The

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Answer 1

Answer #1

Wacc= (E/V)*ke+(P/V)*kp+ (D/V)*kd*(1-tax rate)

where E=market value of equity=24*116000=2784000 ; D=debt=900000*(105/100)=945000 ;

P=preferred equity=38*51000=1938000 ; V=E+D+P=total firm value = 5667000

wacc =(2784000/5667000)*12+(1938000 /5667000)*9+(945000 /5667000)*8*(1-.35) =9.84%

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Answer 2

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Sam's Souvenir Shop has an after-tax cost of debt of 8 %, a cost of equity...

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