Answer:
11.64%
Explanation:
The formula to compute WACC is shown below:
= Weightage of debt × cost of debt × ( 1- tax rate) + (Weightage of common stock) × (cost of common stock)
where,
Weighted of debt = Debt ÷ total firm
The total firm includes debt, preferred stock, and the equity which equals to
= $3,000,000 + $2,000,000 = $5,000,000
So, Weighted of debt = ($2,000,000 ÷ $5,000,000) = 0.40
And, the weighted of common stock = (Common stock ÷ total firm)
= $3,000,000 ÷ $5,000,0000
= 0.60
Now put these values to the above formula
So, the value would equal to
= (0.40 × 6%) × ( 1 - 40%) + (0.60 × 17%)
= 1.44% + 10.2%
= 11.64%
