A coporation has a targt capital structure of 50 percent common stock, 5 percent perferred stock, and 45 percent debt. Its cost of equity is 14 percent, the cost of preferred stock is 6 percent, and the cost of debt is 7.5 percent. The relevant tax rate is 35 percent.
What is the corporation's WACC?
2007-07-25 11:05:14 · 2 answers · asked by Cindi 1 in Business & Finance ➔ Personal Finance
This IS NOT a PERSONAL finance question. Your accounting homework belongs in a different category.
2007-07-25 12:54:00 · answer #1 · answered by STEVEN F 7 · 0⤊ 0⤋
the required equity return ks=krf+beta(km-krf) where krf is risk free rate, beta you have given, market return or risk premium is km. So the wacc=20/60x0.08(1-taxrate)+10/60xcost of preferred+30/60xks. cost of preferred=(10million/10x1)/10million=10% or 0.01 for calculation above in the formula. So you have everything substitute and get the result since you didn't want the result. One question to you, a person who gets so many best answers why you need answers for such a simple problem?
2016-05-18 04:09:47 · answer #2 · answered by ? 2 · 0⤊ 0⤋