Looking for an explanation of why the answer is 11.365 and steps of how to get t

Question

Looking for an explanation of why the answer is 11.365 and steps of how to get there. Really appreciate it! (Related to Checkpoint 14.1) (Weighted average cost of capital) The target capital structure for QM Industries is 45 percent common stock, 10 percent preferred stock, and 45 percent debt. If the cost of common equity for the firm is 18.2 percent, the cost of preferred stock is 10.1 percent, the before-tax cost of debt is 7.4 percent, and the firm's tax rate is 35 percent, what is QM's weighted average cost of capital? QM's weight QMs weighted average cost of capital is 11.36%. (Round to three decimal places.) ed average cost of capital is 36e. (Round to three You answered 8.530 Correct answer 1 1.360 to 11.365 ± 0 002

Explanation / Answer

Weighted average cost of capital

equity / (equity+preferred stock + debt) * ke + preferred stock / (equity+preferred stock+debt)* kp + debt / (equity+preferred stock+ debt)*kd

=  45/100 * 18.2% + 10/100 * 10.1% + 45/100*4.81%

=0.45*18.2% + 0.1 * 10.1% + 0.45 * 4.81%

= 8.19% + 1.01% + 2.165%

= 11.365%

Note:-  Cost of debt after tax = interest (1- tax)

   = 7.4% (1-0.35)

   = 7.4%* 0.65

   = 4.81%

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