Given the following information on Big Brothers, Inc. capital structure, compute

Question

Given the following information on Big Brothers, Inc. capital structure, compute the company's weighted average cost of capital (WACO, The company's marginal tax rate is 40%. Round the answer to two decimal places in percentage form. Write the percentage sign in the "units" box) Type of Capita Percent of Capital tructurej Before-Tax Component cost Bonds Preferred Stock Common Stock 42% 15% Please calculate it 12.78% 12.82% 13.69% Your Answer Answer units Eave Page 1 of 3 Next Page Save All Responses Go to Submit Quiz

Explanation / Answer

% of common stock=(100-42-15)=43%

After tax cost of bonds=12.78(1-0.4)=7.668%

WACC=Respective costs*Respective weights

which is equal to

=(0.42*7.668)+(0.15*12.82)+(0.43*13.69)

which is equal to

=11.03%(Approx).

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