Quiz: Quiz #4 Submit Qui This Question: 2 pts 140f 15 (0 complete) | This Quiz:

Question

Quiz: Quiz #4 Submit Qui This Question: 2 pts 140f 15 (0 complete) | This Quiz: 20 pts possi WACC K. Bell Jewelers wishes to explore the effect on its cost of capital of the rate at which the company pays taxes. The frm wishes to maintain a capital The effect of tax rate on structure of 40% e 15% referred stock, a d45% co n on s o The o st of frarong with retained earn s s es, te ost of pret med stok trin gis 9, and he cost of debt finanarg is gs. Calculate the weighted average cost ofapital (WACC)ghen a tax rateofon. The firm's WACC is%. (Round to two decimal places.) le Enter your answer in the answer box This course Finance Fa Type here to search

Explanation / Answer

WACC =[After tax cos of debt *Wd]+[cost of preferred stock *Wp]+[cost of equity *We]

     = [9(1-.30)*.40]+[9*.15]+[16*.45]

     = 2.52+ 1.35+ 7.2

    = 11.07%

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