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 48 percent debt, 12 percent preferred stock, and 40 percent common stock. If the returns required by investors are 10 percent, 13 percent, and 16 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 = Wd×Rd×(1-t)+ We×Ke+Wp×Rp

W is weights of respective portfolios

R is return on respective portfolios

= 48%×10%×(1-40%)+ 40%×16%+12%×13%

After tax WACC = 10.84%

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.