I have the explanation to the question below, but I keep getting the wrong answe

Question

I have the explanation to the question below, but I keep getting the wrong answer. Can you please let me know what numbers were used in the WACC formula.

Thanks

What numbers are used for wdrd ?

What numbers are used for wprp ?

What numbers are used for wcrs ?

What number is used for       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%   ( Correct Answer)

b.11.44%

c.9.19%

d.7.22%

e.10.22%

Answer: a

Explanation

                    Weights              Costs            

Debt                  40%               6.00%      

Preferred         15%               7.50%

Common          45%             13.00%

WACC = wdrd(1 -T) + wprp + wcrs = 9.38%( what numbers are used in this formula?)

Explanation / Answer

What numbers are used for wdrd(1-t) ? =weight of debt * after tax cost of debt .=40%*6%

What numbers are used for wprp ?=Weight of preferred stock * cost of preference shares=15% * 7.5%

What numbers are used for wcrs ? = Weight of common stock * Cost of common stock =45% * 13%

What number is used for       T ? is the tax rate, if the tax rate is given then after tax cost of debt is arrived by multiplying the cost of debt * (1-T).

Particulars Weight (D) Cost (E ) Weighted cost (F) =(D) *(E ) Debt 40% 6.00% 2.40% Equity 45% 13.00% 5.85% Preferred Stock 15% 7.5% 1.13% Total 1 9.38%

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