I came up with 13.21%, but apparently it was wrong. I had the below formula: (.3

Question

I came up with 13.21%, but apparently it was wrong. I had the below formula:

(.30 x.11 x(1-0.30)) +.(20 x .12) + (.50 x.17)

Where did I go wrong?

The effect of tax rate on WACC K. Bell Jewelers wishes to explore the effect on its cost of capital of the rate at which the company pays taxes. The firm wishes to maintain a capital structure of 30% debt, 20% preferred stock, and 50% common stock. The cost of financing with retained eamings is 179 , the cost ofpreferred stock financing is 12%, and the before tax cost ofdebt financing is 11% Calculate the weighted average cost of capital (WACC) given a tax rate of 25% The firm's WACC is 13.21%. (Round to two decimal places.)

Explanation / Answer

Calculation of the WACC ( Weighted Average Cost of Capital) WACC = ( .30*.11(1-.25)+(.20*.12)+(.50*.17) .02475+.024+.085 0.13375 WACC = 13.375

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