Your firm has a cost of equity of 12 percent, a cost of preferred of 9...
Your firm has a cost of equity of 12 percent, a cost of preferred of 9 percent, and a pre-tax cost of debt of 8.5 percent. Your target capital structure is 35 percent equity, 15 percent preferred stock and 50 percent debt. The firm has a beta of 1.2 and a tax rate of 34 percent. What is your firm’s weighted average cost of capital?
Please Provide full steps (No excel sheet)
Homework Answers
After-tax cost of debt=8.5*(1-tax rate)
=8.5*(1-0.34)=5.61%
WACC=Respective cost*Respective weight
=(12*0.35)+(9*0.15)+(5.61*0.5)
=8.355%
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