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 33 percent debt, 4 percent preferred stock, and 63 percent common stock. If the returns required by investors are 8 percent, 13 percent, and 19 percent for the debt, preferred stock, and common stock, respectively, what is Capital%u2019s after-tax WACC? Assume that the firm%u2019s 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 = _________%

Explanation / Answer

WACC= (KpxWp)+(KexWe)+[KdxWdx(1-t)]

WACC= (.04x13)+(.63x19)+[.33x.08(1-.4)]= 12.506% or 12.51%

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