Please show work Wayco Industrial Supply has an after tax cost of debt of 7.6 pe

ID: 2715375 • Letter: P

Question

Please show work Wayco Industrial Supply has an after tax cost of debt of 7.6 percent, a cost of equity of 14.3 percent, and a cost of preferred stock of 8.5 percent. The firm has 220,000 shares of common stock outstanding at a market price of $27 a share. There are 25,000 shares of preferred stock outstanding at a market price of $41 a share. The bond issue has a face value of $550,000 and a market price of $1,012. The company's tax rate is 37 percent. What is the firm's weighted average cost of capital? 9.18 percent 10.24 percent 11.02 percent 11.50 percent 13.01 percent

Explanation / Answer

Market Value

Weight

Cost

Weight x Cost

Common Stock

5940000

59400

14.3

849420

Preferred Stock

1025000

10250

8.5

87125

Debt

556600

5666

7.6

42301.6

75216

978846.6

Weighted Average Cost of Capital = 978846.6 / 75216 = 13.01 %

Thus answer is option (E) 13.01 percent.