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 36 percent debt, 15 percent preferred stock, and 49 percent common stock. If the returns required by investors are 9 percent, 11 percent, and 14 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 WACC = .36*.09(1-.4) + .15*.11 + .49*.14

= .10454

= 10.45%

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