"A company you are researching has common stock with a beta of 1.25. Currently, Treasury bills yield 4%, and the market portfolio offers an expected return of 13%. The company finances 20% of its assets with debt that has a yield to maturity of 6%. The firm also uses preferred stock to finance 30% of its assets. The preferred stock has a current price of $10 per share and pays a level $1.00 dividend. The firm is in the 35% tax bracket. What is the weighted average cost of capital?"
WACC = wd × rd(1 ? T) + wps × rps + ws × rs
WACC = (Weight of Preferred stock × Cost of Preferred stock) + (Weight of Debt
× After-tax Cost of Debt) + (Weight of Equity × Cost of Equity)...
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Oct 14, 2020EXPERT
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