Given the previous values you calculated, what is the WACC for General Dynamics? Remember that if you couldn't solve one of the prior questions, assume a value for it and plug it in to solve for the WACC. Just list any assumptions.
WACC is the weighted average cost of capital.
WACC = (Weight of common stock)(cost of common stock) + (Weight of preferred stock)(cost of preferred stock) + (Weight of debt)(after-tax cost of debt)
The weights we use are the target weights of the Company.
Let us assume that the target weight of common stock:preferred stock:debt::0.4:0.3:0.3
Let us assume that the cost of common stock:preferred stock:debt::16%:12%:10%
Let us assume that the tax rate id 30%
WACC = (0.4)(16%) + (0.3)(12%) + (0.3)*((10%(1-30%))
=6.4% + 3.6% + 2.1%
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