Capital Co. has a capital structure, based on current market values, that consis

Question

Capital Co. has a capital structure, based on current market values, that consists of 50 percent debt, 10 percent preferred stock, and 40 percent common stock. If the returns required by investors are 8 percent, 10 percent, and 15 percent for the debt, preferred stock, and common stock, respectively, what is Capitals after-tax WACC? Assume that the firms marginal tax rate is 40 percent. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.) After tax WACC = Entry field with incorrect answer now contains modified data %

Explanation / Answer

WACC = 8( 1 -0.40) * 0.50 + 10 * 0.10 + 15*0.40 = 9.4 %

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