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Suppose that MNINK Industries’ capital structure features 64 percent equity, 8 percent preferred stock, and 28...

Suppose that MNINK Industries’ capital structure features 64 percent equity, 8 percent preferred stock, and 28 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 11.80 percent, 9.70 percent, and 9.00 percent, respectively. What is MNINK’s WACC if the firm faces an average tax rate of 21 percent and can make full use of the interest tax shield? (Round your answer to 2 decimal places.)

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Answer #1
Formula to calculate WACC
WACC Wd*Kd*(1-tax rate) + We*Ke+Wp*Kp
Wd is weight of debt, Kd is cost of debt, We is weight of equity, Ke is cost of equity, Wp is weight of preferred stock, Kp is cost of preferred stock
Calculation of firm's market value weight
WACC (0.28*0.09*(1-0.21))+(0.64*0.118)+(0.08*0.097)
WACC 0.019908+0.07552+0.00776
WACC 10.32%
Thus, WACC is 10.32%
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