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 44 percent debt, 11 percent preferred stock, and 45 percent common stock. If the returns required by investors are 9 percent, 13 percent, and 17 percent for the debt, preferred stock, and common stock, respectively, what is Capital

Capital Co. has a capital structure, based on current market values, that consists of 44 percent debt, 11 percent preferred stock, and 45 percent common stock. If the returns required by investors are 9 percent, 13 percent, and 17 percent for the debt, preferred stock, and common stock, respectively, what is Capital's after-tax WACC? Assume that the firm's 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%.)

Explanation / Answer

WACC = 0.44 * 9% * (1-0.4) + 0.11 * 13% + 0.45 * 17% = 11.456%

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