Question

Pfd Company has debt with a yield to maturity of 6.5 %?, a cost of equity...

Pfd Company has debt with a yield to maturity of 6.5 %?, a cost of equity of 13.5 %?, and a cost of preferred stock of 10.3 %. The market values of its? debt, preferred? stock, and equity are $ 12.7 ?million, $ 2.7 ?million, and $ 16.2 ?million, respectively, and its tax rate is 40 %. What is this? firm's after-tax? WACC?

a). ?Pfd's WACC is _________ Percent

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Answer #1
Amount weight cost weight*cost
Equity                              16.20 0.5127 13.5000% 0.0692
debt                              12.70 0.4019 3.9000% 0.0157
preferred shares                                2.70 0.0854 10.3000% 0.0088

WACC = 9.37%

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