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Avery Corporation's target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest...

Avery Corporation's target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from reinvested earnings is 11.25%, and the tax rate is 25%. The firm will not be issuing any new common stock. What is Avery's WACC?
a. 9.94%
b. 9.19%
c. 8.49%
d. 9.55%
e. 8.83%
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Answer #1
WACC
Mode Weight Cost WACC
a b c d=b*c
Debt 0.35 5% 1.71%
Preferred stock 0.1 6% 0.60%
Common stock 0.55 11% 6.19%
8.49%
Correct Option : c
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