I have the explanation to the question below, I just need some help identifying

Question

I have the explanation to the question below, I just need some help identifying some terms and how they are calculated.

Thanks

What does wdrd = ?

What does wprp = ?

What does wcrs = ?

What does   T = ?

Great Big Company has a target capital structure of 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 13.00%. The firm will not be issuing any new stock. What is its WACC?

a.9.38% (Answer)

b.11.44%

c.9.19%

d.7.22%

e.10.22%

Answer: a

Weights          Costs             Debt             

                        40%               6.00%                        

Preferred         15%               7.50%

Common          45%             13.00%

WACC = wdrd(1 -T) + wprp + wcrs = 9.38%

Explanation / Answer

(wdrd ) stands for weight of debt ,cost of debt

(wprp) stands for weight of preferred stock and cost of preferrd stock

(wcrs) stands for weight of common stock and cost of common stocks

( t) stands for tax

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