Answer:
WACC = 9.18%
Explanation:
given data
common stock = 46 percent
preferred stock = 5 percent
cost of equity = 15.8 percent
cost of preferred stock = 8.3 percent
pre-tax cost of debt = 6.8 percent
tax rate = 23 percent
solution
first we get here after tax cost of debt that is express as
after tax cost of debt = pretax cost of debt × (1 - relevant tax rate) ...........1
put here value and we get
after tax cost of debt = 6.8% × (1 - 0.23)
after tax cost of debt = 0.05236
after tax cost of debt = 5.24 %
and
now for WACC
WACC = respective weight × respective cost
WACC = ( common stock × cost of equity ) + ( preferred stock × pre tax) + (weight of debt × After tax cost of debt) .....................2
we take here weight of debt is 30 percent
so put here value
WACC = 46% × 15.8% + 5% × 6.8% + 30% × 5.24 %
WACC = 0.0918
WACC = 9.18%
