Answer:
WACC = 9.22%
Explanation:
after tax cost of debt = 7.8% x (1 - 34%) = 5.148%
Re = 12.4%
cost of preferred stock = 8%
total value:
105,000 common stocks x $22 = $2,310,000
25,000 preferred stocks x $45 = $1,125,00
$1,500,000 bonds x 0.98 = $1,470,000
total value = $4,905,000
capital structure:
common stocks = $2,310 / $4,905 = 47.09%
preferred stocks = $1,125,00 / $4,905 = 22.94%
debt = $1,470,00 / $4,905 = 29.97%
WACC = (47.09% x 0.124) + (22.94% x 0.08) + (29.97% x 0.05148) = 9.22%
