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 21 percent debt, 2 percent preferred stock, and 77 percent common stock. If the returns required by investors are 8 percent, 10 percent, and 15 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 21 percent debt, 2 percent preferred stock, and 77 percent common stock. If the returns required by investors are 8 percent, 10 percent, and 15 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

.21 *8(1-.4) + .02 *10 +.77*15= 12.758 = 12.758%

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