Question

Suppose that PAW, Inc. has a capital structure of 60 percent equity, 10 percent preferred stock, and 30 percent debt. If the before-tax component costs of equity, preferred stock and debt are 17.5 percent, 12 percent and 6.5 percent, respectively, what is PAW's WACC if the firm faces an average tax rate of 28 percent?

Answer 1

Answer:

The answer is: 13.10%

Explanation:

To calculate PAW Inc.'s weighted average cost of capital (WACC) we can use the following formula:

= (0.60 x 17.5%) + (0.10 x 12%) + [(.30 x 6.5%) x (1 - .28)] =

= 0.105 + 0.012 + (0.0195 x 0.72) = 0.105 + 0.012 + 0.01404 = 0.13104 x 100% =

= 13.104%