weighted average cost of capital?

Question

A public limited company was recently formed to manufacture a new product. It has the following capital structure in the market value terms:
DebenturesRs. 7,000,000
Preferred stock 1,000,000
Common stock (320,000 shares) 8,000,000
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Total capital Rs.16,000,000

The company has a marginal tax rate of 40%. A study of publicly held companies in this line of business suggests that the required return on equity is about 17%. The company’s debt is currently yielding 13%, and its preferred stock is yielding 15%.

Compute the firm’s present weighted average cost of capital.

Answer 1

Use this formula:

WACC = We*Re + Wp*Rp +Wd*Rd*(1-t)

where We is the weight of equity (8MM/16MM = 0.5)
where Wp is the weight of preferred (1MM/16MM)
where Wd is the weight of debt (7MM/16MM)

Re is the return on equity
Rp is the return on preferred stock
Rd is the return on debt

t is the tax rate = 0.4