Nevada Hydro is 40% debt-financed and has a weighted-average cost of capital of 9.7%:= (1...

Nevada Hydro is 40% debt-financed and has a weighted-average cost of capital of 9.7%:

= (1 - .35)(.085)(.40) + .125(.60) = .097

Goldensacks Company is advising Nevada Hydro to issue $75 million of preferred stock at a dividend yield of 9%. The proceeds would be used to repurchase and retire common stock. The preferred issue would account for 10% of the preissue market value of the firm.

Goldensacks argues that these transactions would reduce Nevada Hydro's WACC to 9.4%:

WACC = (1 - .35)(.085)(.40) + ,09(.10) + .125(.50)

    = .094, or 9.4%

Do you agree with this calculation? Explain..