preferred stock, and 29 percent debt.Its cost of equity is 13.3 percent, the cos

Question

preferred stock, and 29 percent debt.Its cost of equity is 13.3 percent, the cost of preferred stock is 6.3 percent, and the pretax cost of debt is 8 percent. The relevant tax rate is 38 peroent a. What is the company's WACC? (Do not round intermediate calculations and enter your answer as WACC b. What is the aftertax cost of debi? (Do not round intermediate calculations and Añertax cost of debt a percent rounded to 2 decimal places,o.g, 32.16.) 83984 0% enter your answer as a percent rounded to 2 decimal places, e.g, 32.16) 496 % 5

Explanation / Answer

Answer ) WACC = Weight of debt * cost of debt * (1-tax rate) + weight of equity * cost of equity + Weight of preferred debt * cost of debt

WACC = 63%*13.3% + 8%*6.3%+29%*8%*(1-0.38) = 10.321%

Answer ) After tax cost of debt = 29%*8%*(1-0.38) = 0.01438 or 1.438%

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