You were hired as a consultant to Disney, whose target capital structure is 36 % debt,...
You were hired as a consultant to Disney, whose target capital structure is 36 % debt, 13 % preferred, and 52 % common equity. The before-tax cost of debt is 9 %, the cost of preferred stock is 12 %, and the cost of equity is 14 %. The firm will not be issuing any new stock. Tax rate is 21%. What is its WACC? (use weights in decimals)
Homework Answers
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 = (0.52 * 0.14) + (0.13 * 0.12) + [0.36 * 0.09(1 - 0.21)]
WACC = 0.1140 or 11.40%
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