Shi Import-Export's balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi's tax rate is 25%, rd = 6%, rps = 7.9%, and rs = 12%. If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC? Round your answer to two decimal places.
WACC is weighted Avg cost of sources in capital structure
COst of Debt shall be considered after Tax
After Cost of Debt = rd * (1-Tax rate )
= 6% * ( 1 - 0.25)
= 6% * 0.75
= 4.5%
WACC:
Source | Weight | Cost | Wtd Cost |
Debt | 0.30 | 4.50% | 1.35% |
Prefered Stock | 0.05 | 7.90% | 0.40% |
Common Stock | 0.65 | 12.00% | 7.80% |
WACC | 9.55% |
Shi Import-Export's balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total...
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