Company A has a target capital structure of 30 percent common stock, 5 percent preferred stock,...

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Company A has a target capital structure of 30 percent common stock, 5 percent preferred stock,...

Company A has a target capital structure of 30 percent common stock, 5 percent preferred stock, and 65 percent debt. Its cost of equity is 18 percent, the cost of preferred stock is 6.5 percent, and the after-tax cost of debt is 8.5 percent. What is the firm's WACC given a tax rate of 39 percent?

12.50 percent

10.50 percent

9.095 percent

10.431 percent

11.25 percent

business finance

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Answer 1

Answer #1

WACC = Cost of equityWeight of equity+Cost of preferred stockWeight of preferred stock+Cost debt*Weight of debt
= 18%30%+6.5%5%+8.5%*65% =	11.25%

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Answer 2

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