Calculate the WACC A firm\'s correctly computed capital structure consists of 20

Question

Calculate the WACC A firm's correctly computed capital structure consists of 20% debt, 10% preferred stock, and 70% equity. If new debt of $3 million can be raised at the current interest rate before a higher yield must be paid to investors, at what point will the MCC break upward because of the cost of debt? A project has an IRR of 16% and is being considered by a firm with 55 million in debt and $15 million in equity. Assuming the debt costs 12% (after-tax value), what is the most equity can cost for the project to be acceptable to the firm?

Explanation / Answer

18.

WACC= (50/150)*6%+(10/150)*9%+(90/150)*12%=9.8%

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