Question

(Weighted average cost of​ capital) The target capital structure for QM Industries is

45 percent common​ stock, 6percent preferred​ stock, and 49percent debt. If the cost of common equity for the firm is 17.1 percent, the cost of preferred stock is10.5

​percent, the​ before-tax cost of debt is 8.1 percent, and the​ firm's tax rate is 35

​percent, what is​ QM's weighted average cost of​ capital?

​QM's weighted average cost of capital is

nothing​%.

​(Round to three decimal​ places.)

Answer 1

	After Tax Cost of Debt
	= Before Tax Cost of Debt * (1-Tax Rate)
	= 8.1% * (1-35%)
	= 8.1% * 0.65
	= 5.265%
	QM's weighted average cost of capital
	= Weight of Common equity*Cost of Common Equity
	+ Weight of Preferred Stock* Cost of Preferred Stock
	+ Weight of Debt* After Tax Cost of Debt
	= 45%*17.1% + 6%*10.5% + 49%*5.265%
	= 0.45*17.1% + 0.06*10.5% + 0.49*5.265%
	= 7.695% + 0.63% + 2.580%
	= 10.905%
	QM's weighted average cost of capital = 10.905%