Elway Electronics has debt with a market value of $400,000, preferred stock with

Question

Elway Electronics has debt with a market value of $400,000, preferred stock with a market value of $250,000, and common stock with a market value of $950,000. If debt has a pre-tax cost of 9%, preferred stock a cost of 11%, common stock a cost of 14%, and the firm has a tax rate of 40%, what is the WACC? Elway Electronics has debt with a market value of $400,000, preferred stock with a market value of $250,000, and common stock with a market value of $950,000. If debt has a pre-tax cost of 9%, preferred stock a cost of 11%, common stock a cost of 14%, and the firm has a tax rate of 40%, what is the WACC? Elway Electronics has debt with a market value of $400,000, preferred stock with a market value of $250,000, and common stock with a market value of $950,000. If debt has a pre-tax cost of 9%, preferred stock a cost of 11%, common stock a cost of 14%, and the firm has a tax rate of 40%, what is the WACC?

Explanation / Answer

total value = 400000 + 950000 + 250000 = 1600000

WACC = (400000/1600000) * 9% * (1-0.4) + (250000/1600000) * 11% + (950000/1600000) * 14%

= 11.38%

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