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Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding,...

Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding, the current market price, and the required rate of return for these securities are stated in the table below. The firm’s tax rate is 35%. Calculate the firm's WACC adjusted for taxes using the market information in the table. Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box) Please show the entire process

The Number of

Securities Outstanding

 Selling price The Required Rate of Return
Bonds 1,914 $1,251 8.23%
Preferred Stocks 4,026 $95.77 15.64%
Common Stocks 1,028 $53.42 11.89%
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Answer #1

The correct answer is :

6.88%

Note :

WACC = Cost of Debt * Weight of Debt + Cost of Equity * Weight of Equity+ Cost of Preferred Stock * Weight of Preferred Stock

After Tax Cost of Debt= Required Rate of Return on Debt * ( 1- Tax Rate)

= 8.23% *(1-0.35)

= 5.3495%

Number Outstanding Price Value Weight (Respective Value / Total Value) Cost (%) Weight * Cost
Debt 1,914.00 1,251.00 23,94,414.00 84.46 5.3495 4.52
Common Stock 4,026.00 95.77 3,85,570.02 13.60 15.6400 2.13
Preferred Stock 1,028.00 53.42 54,915.76 1.94 11.8900 0.23
6,968.00 28,34,899.78 6.88
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