apital Co. has a capital structure, based on current market values, that consist
ID: 2702487 • Letter: A
Question
apital Co. has a capital structure, based on current market values, that consists of 25 percent debt, 12 percent preferred stock, and 63 percent common stock. If the returns required by investors are 10 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 After tax WACC
Explanation / Answer
WACC=25%*6%+12%*13%+63%*18%=14.4%
DEBT=10*(1-0.40)=6%
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