Answer:
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Answer:
12.085 %
Explanation:
WACC = Cost of Equity x Weight of Equity + Cost of Preference Stock x Weight of Preference Stock + Cost of Debt x Weight of Debt
Remember to use the after tax cost of debt :
after tax cost of debt = interest x ( 1 - tax rate)
= 8.00 % x (1 - 0.35)
= 5.20 %
therefore,
WACC = 22.00 % x 0.40 + 8.50 % x 0.05 + 5.20 % x 0.55
= 12.085 %
thus
the firm's WACC given a tax rate of 35 percent is 12.085 %
<span>9.20 percent
Re= 0.036 +1.2(0.085) = 0.138
Re= [($1.10 x 1.02)$19] +.02 = 0.0790526
ReAverage = (0.138 + 0.0790526)/2 = 0.108526
WACC = (1/1.65)(0.108526) + (0.65/1.65)(0.098)(1-0.32) = 9.20 percent</span>