You were hired as a consultant to XYZ Company, whose target capital structure is

Q: You were hired as a consultant to XYZ Company, whose target capital structure is

Answer: WACC = E/V x RE + P/V x PD + D/V x I(1-t) = 0.57 x 14.40 + 0.12 x 5.35 + .31 x 8.40 (1-0.35) = 10.5426% here, WACC = Weighted Average Cost of Capital E/V = Equity Proportion RE = Retained Earnings rate P/V = Preferred Capital Proportion PD = Preferred Stock yield D = Debt Capital Proportion I = Interest rate on debt t = tax rate

ID: 462219 • Letter: Y

Question

You were hired as a consultant to XYZ Company, whose target capital structure is 31% debt, 12% preferred, and 57% common equity. The interest rate on new debt is 8.40%, the yield on the preferred is 5.35%, the cost of common from retained earnings is 14.40%, and the tax rate is 35.00%. The firm will not be issuing any new common stock. What is XYZ's WACC? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. 12.76% 11.07% 9.07% 13.18% 10.54% please show work

Explanation / Answer

Answer:

WACC = E/V x RE + P/V x PD + D/V x I(1-t) = 0.57 x 14.40 + 0.12 x 5.35 + .31 x 8.40 (1-0.35) = 10.5426%

here,

WACC = Weighted Average Cost of Capital

E/V = Equity Proportion

RE = Retained Earnings rate

P/V = Preferred Capital Proportion

PD = Preferred Stock yield

D = Debt Capital Proportion

I = Interest rate on debt

t = tax rate

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You were hired as a consultant to Quigley Company, whose target capital structur

You were hired as a consultant to XYZ Company, whose target capital structure is

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You were hired as a consultant to XYZ Company, whose target capital structure is

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