Answer:
- a. What is the company’s WACC?
R_Wacc = 13% (65%) + 5% (5%) + 6% (30%) * (1-0,25) = 10,05%
- b. What is the aftertax cost of debt?
The aftertax cost of debt is:
R_Debt : (1 - 0,25) x 6% = 4,50%
Explanation:
The WACC it's defined by the formula :
WACC: E/V*Re + D/V*Rd *(1-0,25)
Re: 13,00% Cost of Common Equity
Re: 5,00% Cost of Preferred STOCK
Re: 6% Cost of Debt
E/V: 65% Percentage of financing that is Common Equity
PS/V: 5% Percentage of financing that is Preferred Stock
DB/V: 30% Percentage of financing that is Debt
Tax: 25% Corporate tax rate
Now we have all of the components to calculate the WACC.
The WACC is:
R_Wacc = 13% (65%) + 5% (5%) + 6% (30%)*(1-0,25) = 10,05%
The aftertax cost of debt is:
R_Debt : (1 - 0,25) x 6% = 4,50%
