1. Rivington Company is thinking about expanding and wants to calculate their WA
ID: 2708353 • Letter: 1
Question
1. Rivington Company is thinking about expanding and wants to calculate their WACC. Assume their capital structure consists of 45% common stock, 20% preferred stock, and 35% debt. Further, analysts predict that their future cost of debt will be 5%. The current cost of equity is 12% and the cost of preferred stock is 8%. The firm
Rivington Company is thinking about expanding and wants to calculate their WACC. Assume their capital structure consists of 45% common stock, 20% preferred stock, and 35% debt. Further, analysts predict that their future cost of debt will be 5%. The current cost of equity is 12% and the cost of preferred stock is 8%. The firm's tax rate is 30%. If the market risk premium is 9% and the risk free-rate is 3%, what is Rivington's WACC?Explanation / Answer
WACC = Wd*Kd + We*Ke +Wp*Kp
= 5*0.35 + 12*0.45 + 8*0.2
=8.75%
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