Homework Answers
| 1] | After tax cost of debt = 6%*(1-35%) = | 3.90% | |||
| 2] | WACC is calculated in the table below: | ||||
| Source of Capital | Market Value in Millions | Weight | Component Cost | WACC | |
| Debt | $ 250.00 | 40.00% | 3.90% | 1.56% | |
| Preferred stock | $ 75.00 | 12.00% | 9.00% | 1.08% | |
| Common stock | $ 300.00 | 48.00% | 12.00% | 5.76% | |
| Total | $ 625.00 | 8.40% | |||
| Answer: [a] 8.40% |
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