Mountain Gears Inc. has 30% debt, 60% common equity and 10% preferred stock in its capital...
Mountain Gears Inc. has 30% debt, 60% common equity and 10% preferred stock in its capital structure. If Rd=6%, Rp=9% and Re=12%, what is Mountain Gears' cost of capital? Assume the tax rate is 40%.
Group of answer choices
9.18%
7.12%
10.8%
5.27%
Homework Answers
After-tax cost of debt=6*(1-tax rate)
=6*(1-0.4)=3.6%
Cost of capital=Respective costs*Respective weight
=(0.3*3.6)+(0.6*12)+(0.1*9)
=9.18%
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