Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The

Question

Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding, the current market price, and the required rate of return for these securities are stated in the table below. The firm’s tax rate is 35%. Calculate the firm's WACC adjusted for taxes using the market information in the table.

The Number of Securities Outstanding Selling price The Required Rate of Return Bonds 1,224 $1,108 11.65% Preferred Stocks 4,613 $84.27 15.39% Common Stocks 1,073 $142.16 13.47%

Explanation / Answer

Particulars Number Selling Price Value Weights Required rate of return after tax WACC Bonds 1224 1108 1356192 71.47% 7.5725                5.41 Preferred stock 4613 84.27 388737.51 20.49% 15.39                3.15 Common stock 1073 142.16 152537.68 8.04% 13.47                1.08 Total 1897467.19                9.65

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