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3. WACC. Reactive Power Generation has the following capital structure. Its corporate tax rate is 21%. What is its WACC?(QL01

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Answer #1
After tax rate = YTM * (1-Tax rate)
After tax rate = 6 * (1-0.21)
After tax rate = 4.74
Total Capital value = Value of Equity + Value of Debt + Value of Pref. stock
=50+20+10
=80
Weight of Equity = Value of Equity/Total Capital Value
= 50/80
=0.625
Weight of Debt = Value of Debt/Total Capital Value
= 20/80
=0.25
Weight of Pref. stock = Value of Pref. stock/Total Capital Value
= 10/80
=0.125
Cost of Capital = Weight of Equity*Cost of Equity+Weight of Debt*Cost of Debt+Weight of Pref. stock*Cost of Pref. stock
Cost of Capital = 12*0.625+4.74*0.25+8*0.125
Cost of Capital = 9.685
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