Reactive Power Generation has the following capital structure. Its corporate tax rate is 21%. Security Market...

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Question

Reactive Power Generation has the following capital structure. Its corporate tax rate is 21%. Security Market...

Reactive Power Generation has the following capital structure. Its corporate tax rate is 21%.

Security	Market Value			Required Rate of Return
Debt	$	20	million		2	%
Preferred stock		30	million		4
Common stock		50	million		8

What is its WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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Answer 1

Answer #1

Total value=(20+30+50)=$100 million

After-tax rate of debt=2*(1-tax rate)

=2*(1-0.21)=1.58%

WACC=Respective return*Respective weight

=(20/100*1.58)+(30/100*4)+(50/100*8)

=5.52%(Approx).

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Answer 2

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