ABC company%u2019s market value of common stock is $200 million, preferred stock
ID: 2699947 • Letter: A
Question
ABC company%u2019s market value of common stock is $200 million, preferred stock is $300 million, and debt is $500 million. Suppose that the cost of equity is 7%, the before-tax cost of debt is 4.9%, cost of preferred stock is 4.2%, and the tax rate is 32%. Compute the WACC. ABC company%u2019s market value of common stock is $200 million, preferred stock is $300 million, and debt is $500 million. Suppose that the cost of equity is 7%, the before-tax cost of debt is 4.9%, cost of preferred stock is 4.2%, and the tax rate is 32%. ABC company%u2019s market value of common stock is $200 million, preferred stock is $300 million, and debt is $500 million. Suppose that the cost of equity is 7%, the before-tax cost of debt is 4.9%, cost of preferred stock is 4.2%, and the tax rate is 32%. ABC company%u2019s market value of common stock is $200 million, preferred stock is $300 million, and debt is $500 million. Suppose that the cost of equity is 7%, the before-tax cost of debt is 4.9%, cost of preferred stock is 4.2%, and the tax rate is 32%. ABC company%u2019s market value of common stock is $200 million, preferred stock is $300 million, and debt is $500 million. Suppose that the cost of equity is 7%, the before-tax cost of debt is 4.9%, cost of preferred stock is 4.2%, and the tax rate is 32%. ABC company%u2019s market value of common stock is $200 million, preferred stock is $300 million, and debt is $500 million. Suppose that the cost of equity is 7%, the before-tax cost of debt is 4.9%, cost of preferred stock is 4.2%, and the tax rate is 32%. Compute the WACC.Explanation / Answer
The cost of debt here is the after tax cost of debt which is calculated as 4.9% * (1 - 0.32)..........
The WACC of the company is 4.33%
amount($mn) weight cost wt*cost equity 200 0.2 7% 0.014 preferred 300 0.3 4.20% 0.0126 debt 500 0.5 3.3% 0.01666 TOTAL 4.33%