Homework Answers
| Weighted average cost of capital (WACC) = [(S/S+B+P)*Rs + (P/S+B+P)*Rp + (B/S+B+P)*Rb(1-tc)] | |||||||||||
| S = equity, B = debt, P = Preferred stock, Rs = Cost of equity, Rb = cost of debt, Rp = cost of preferred stock | |||||||||||
| tc = corporations tax rate | |||||||||||
| S/S+B+P | 0.36 | ||||||||||
| P/S+B+P | 0.19 | ||||||||||
| B/S+B+P | 0.45 | ||||||||||
| Rs | 0.15 | ||||||||||
| Rp | 0.11 | ||||||||||
| Rb | 0.09 | ||||||||||
| tc | 0.4 | ||||||||||
| WACC | .36*.15 + .19*.11 + .45*.09*(1-.4) | ||||||||||
| WACC | .054 + .0209 + .0405*(.6) | ||||||||||
| WACC | .0749 + .0243 | ||||||||||
| WACC | 0.0992 | ||||||||||
| The aftertax WACC is 9.92%. | |||||||||||
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values, that consists of 30 percent debt, 5 percent preferred
stock, and 65 percent common stock. If the returns required by
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preferred stock, and common stock, respectively, what is Pharoah’s
after-tax WACC? Assume that the firm’s marginal tax rate is 40
percent.
I solved it wrong by doing 30%*12*(1-40%)+13%*12%*+65%*15%=
0.021600 + 0.015600 + 0.097500=
0.1347=13.47%
I am not...
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