Answer:
WACC = 11.1%
Explanation:
The weighted Average cost of Capital is the average cost of capital for the different sources of long-term capital available to a firm weighted according to the proportion each source of finance bears to the total capital in the pool.
<em>Market of securities</em>
Common stock = $80 × 32,500= 2,600,000.
Preferred stock = $95.50 × 7,350= 701,925.00
Bond = 407,000/100 × 111.5= 453,805.00
<em>Cost of each capital type</em>
Common stock= 12.95
Preferred stock = (7.90%× 100)/95.50= 8.3%
Bond= 8.11%× (1-0.4)=4.87%
<em>WACC</em>
Type Market Value Cost Market value cost
Common stock 2,600,000. 12.95% 336,700.00
Preferred 701,925.00 8.3% 58,065.00
Bond 4<u>53,805.00 </u> 4.87% <u>22,100.30 </u>
Total <u>3,755,730.00</u> <u> 416,865.30</u>
WACC = (416,865.30 / 3,755,730.00) × 100
= 11.1%
WACC = 11.1%
