You were hired as a consultant to a company, whose target capital structure is 50% debt, 0% preferred, and 50% common equity. The after-tax cost of debt is 6.00%, the cost of preferred stock is 7.50%, and the cost of retained earnings is 13%. The firm will not be issuing any new stock. What is its WACC?

You were hired as a consultant to a company, whose target capital structure is 50% debt, 0% preferred, and 50% common equity. The after-tax cost of debt is 6.00%, the cost of preferred stock is 7.50%, and the cost of retained earnings is 13%. The firm will not be issuing any new stock. What is its WACC?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter9: The Cost Of Capital

Section9.8: The Weighted Average Cost Of Capital (wacc)

Problem 3ST

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