Calculate the weighted average cost of capital for the following firm: it has $600000 in debt,...
Calculate the weighted average cost of capital for the following firm: it has $600000 in debt, $400000 in common stock and $200000 in preferred stock. It has a 4% cost of debt, 14% cost of common stock, 12% cost of preferred stock and a 34% tax rate.
Group of answer choices
7.99%
8.64%
5.14%
9.3%
Homework Answers
After-tax cost of debt=4*(1-tax rate)
=4*(1-0.34)=2.64%
Total value=(600000+400000+200000)=$1200000
WACC=Respective costs*Respective weight
=(600000/1200000*2.64)+(400000/1200000*14)+(200000/1200000*12)
=7.99%(Approx).
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Calculate the weighted average cost of capital for the following
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