chapter 10 3. Quantitative Problem: Barton Industries expects that its target ca
ID: 2642827 • Letter: C
Question
chapter 10
3. Quantitative Problem: Barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 40%. Assume that the firm's cost of debt, rd, is 7.9%, the firm's cost of preferred stock, rp, is 7.4% and the firm's cost of equity is 11.9% for old equity, rs, and 12.8% for new equity, re. What is the firm's weighted average cost of capital (WACC1) if it uses retained earnings as its source of common equity? Round your answer to 3 decimal places. Do not round intermadiate calculations.
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b. What is the firm
Explanation / Answer
Sources Of capital Debt Preffered Stock Common Equity Percentage 40% 5% 55% Cost of Capital 7.90% 7.40% 11.90% OLD 12.80% NEW Tax rate 40% Wacc= rd*(1-t)*weight of debt +rp*weght of preferred stock+re*weight of equity Wacc1 8.81% Wacc2 9.31%
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