value: 1.60 points Bargeron Corporation has a target capital structure of 63 per
ID: 2792193 • Letter: V
Question
value: 1.60 points Bargeron Corporation has a target capital structure of 63 percent common stock, 8 percent preferred stock, and 29 percent debt. Its cost of equity is 13.8 percent, the cost of preferred stock is 6.8 percent, and the pretax cost of debt is 8.5 percent. The relevant tax rate is 38 percent. a. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Aftertax cost of debt 10.77 %Explanation / Answer
After tax cost of debt=8.5(1-0.38)=5.27%
WACC=Respective costs*respective weights
=(0.63*13.8)+(0.08*6.8)+(0.29*5.27)=10.77%(Approx)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.