Given the following information on Big SIsters, Inc. capital structure, compute

Question

Given the following information on Big SIsters, Inc. capital structure, compute the company's weighted averaged cost of capital. The company's marginal tax rate is 40%.

                                         Percent of capital structure                       before tax component cost

Bonds                                           36.70%                                                   11.92%

Preferred Stock                             12.89%                                                   17.46%

Common Stock                              50.41%                                                   12%

Please show formula, how to solve, and answer? Thank you.                          

Explanation / Answer

WACC = Weight of Common Stock* Cost of Common Stock + Weight of Preferred Stock* Cost of Preferred Stock + Weight of Debt* After Tax cost of Debt

WACC = 50.41%*12 + 12.89%*17.46 + 36.70%*11.92*(1-40%)

WACC = 10.92%

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