MicroTech Corporation is subject to a 34% income tax rate. Given the following i

Question

MicroTech Corporation is subject to a 34% income tax rate. Given the following information about the firm’s capital structure, calculate the corporation’s weighted-average cost of capital (WACC): (Do not round intermediate calculations. Round "WACC" to 2 decimal places.)

Source of Funds Market Value After-tax Rate or Expected Return

Long-term debt $80 million 9%
Preferred stock 30 million 11
Common stock 30 million 14
Source of funds Components for WACC Calculations
Long term debt
Preferred stock
Common stock

Please show all calculation steps not just the answers.

Explanation / Answer

Total value=(80+30+30)=$140 million

Long term debt (80/140*0.09)=5.14%(Approx) Preferred stock (30/140*0.11)=2.36%(Approx) Common stock (30/140*0.14)=3% WACC (5.14+2.36+3)=10.50%(Approx).

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