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 37 percent debt, 17 percent preferred stock, and 46 percent common stock. If the returns required by investors are 9 percent, 13 percent, and 18 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

After tax cost of debt = 9%*(1-tax rate) = 9%*(1-40%) = 5.4%

So after-tax WACC = 0.37*5.4% + 0.17*13% + 0.46*18% = 12.49%

Hope this helped ! Let me know in case of any queries.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.