You were hired as a consultant to Delta State Laundry Services, whose target capital structure is...

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You were hired as a consultant to Delta State Laundry Services, whose target capital structure is 55% debt, 10% preferred, an

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Answer 1

Answer #1

WACC = (Weight of common stock * Cost of common equity) + (Weight of preferred stock * Cost of preferred stock) + [Weight of debt * Pretax cost of debt(1 - Tax)]

WACC = (0.35 * 0.1125) + (0.10 * 0.06) + [0.55 * 0.065(1 - 0.40)]

WACC = 0.0668 or 6.68%

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Answer 2

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