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 27 percent debt, 19 percent preferred stock, and 54 percent common stock. If the returns required by investors are 11 percent, 11 percent, and 18 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 27 percent debt, 19 percent preferred stock, and 54 percent common stock. If the returns required by investors are 11 percent, 11 percent, and 18 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 = .27*(1-.4)*11 + .19*11 + .54*18 = 13.59%

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