Answer:
9.127%
Explanation:
For calculating the WACC we need to do following calculations which are shown below:
value of debt = 1,000 × $1,100 = $1,100,000
cost of debt = 8% × (1 - 0.3) = 4.8%
value of equity = 50,000 shares × $18 = $900,000
value of preferred stock = 5,000 × $40 = $200,000
Now
Market value of firm = $1,100,000 + $900,000 + $200,000 = $2,200,000
The formula is shown below:
= Weightage of debt × cost of debt + (Weightage of common stock) × (cost of common stock) + (Weightage of preferred stock) × (cost of preferred stock)
WACC = ($1,100,000 ÷ $2,200,000) × 4.8% + ($900,000 ÷ $2,200,000) × 14% + ($200,000 ÷ $2,200,000) × 11%
= 9.127%
