Answer:
10.18%
Explanation:
The computation of the WACC is shown below:
But before that following calculation is to be done
The value of debt is
= 14000 × $1,000 × 107%
= $14,980,000
The value of equity is
= 470,000 × $65
= $30,550,000
The value of preferred stock is
= 20,500 × $86
= $1,763,000
Now
value of total capital is
= $14,980,000 + $30,550,000 + $1,763,000
= $47,293,000
Now we find the cost of debt using excel function i.e.
= RATE(nper,pmt,pv,fv)) × 2
= RATE(29 × 2,1000 × 6.3% ÷ 2,-1000 × 107%,1000)) ×2
= 5.80%
Now
Cost of common stock is
= 5.2% + 1.16 × 7%
= 13.32%
cost of preferred stock is
= (100 × 4.1%) ÷ 86
= 4.77%
Now finally
WACC = weight of debt × cost of debt ×(1 - tax rate) + weight of equity × cost of equity + weight of preferred stock ×cost of preferred stock
= ($14,980,000 ÷ $47,293,000) × 5.80% × (1 - 24%)+($30,550,000 ÷ $47,293,000) × 13.32% + ($1,763,000 ÷ $47,293,000) ×4.77%
= 10.18%
