Homework: Homework 8_Chapter 9 Score: 0 of 1 pt P9-12 (similar to) Save 5of50) c

Question

Homework: Homework 8_Chapter 9 Score: 0 of 1 pt P9-12 (similar to) Save 5of50) complete) HWScore: 096, 0 of 9 pts Question Help * 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 str cost of debt finan ngis8% Calculate the weighted average oost of re of 30% debt 15% preferred stock, and 55% common stock The cost of financing with retained earnings is 13%, the cost or preferred stock finan ng is 11%, and the before tax or ital(WACC) given a tax rate of 40%, al The firm's WACC is%. (Round to two decimal places.) Entor your answer in the answer box and then click Check Answer All parts showing Clear Al To see what to study next, go to your Study Plan Type here to search

Explanation / Answer

After tax cost of debt=8(1-0.4)=4.8%

WACC=Respective costs*respective weights

=(0.3*4.8)+(0.15*11)+(0.55*13)

=10.24%

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