Targaryen Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock,...

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Targaryen Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent de

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Answer 1

Answer #1

After-tax Cost of Debt = Pretax Cost of Debt * (1 - Tax Rate)
After-tax Cost of Debt = 8.00% * (1 - 0.21)
After-tax Cost of Debt = 6.32%

WACC = Weight of Debt * After-tax Cost of Debt + Weight of Preferred Stock * Cost of Preferred Stock + Weight of Common Stock * Cost of Preferred Stock
WACC = 35% * 6.32% + 5% * 7.00% + 60% * 9.00%
WACC = 7.96%

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Answer 2

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