Question

TinCan Corp. has common stock with a market value of $450,000, debt with a market value of $350,000 and preferred stock with a market value of $150,000. If debt has a cost of 8%, preferred stock a cost of 10%, common stock a cost of 12%, and the firm has a tax rate of 30%, what is the WACC?

Answer 1

Answer:

9?33%

Explanation:

Calculation for what is the WACC

First step is to calculate the After tax percentage

After tax percentage=8% *(1-30% tax rate)

After tax percentage=0.08 *0.7

After tax percentage=0.056*100

After tax percentage=5.6%

Second is to calculate the Total capital of all the market value

Common stock 450,000

Debt $350,000

Preferred stock $150,000

Total=$950,000

Third step is to calculate the percentage amount for common stock, debt and Preferred stock

Common stock= $450,000 x 12%

Common stock =$ 54,000

Debt =$350,000 x 5.6%

Debt =$ 19,600

Preferred stock=$150,000 x 10%

Preferred stock=$ 15,000

Hence, the total cost=$54,000+$ 19,600+$15,000

Total cost=$88,600

Last step is to calculate the WACC

WACC = $88,600 / $950,000

WACC = 9.33%

Therefore WACC will be 9.33%