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Calculating weighted average cost of capital of Shi Importer

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Shi Importer's balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi's tax rate is 40%, rd = 6%, rps = 5.8%, and rs = 12%. If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC?

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Solution Summary

This solution shows how to calculate the weighted average cost of capital for the given company, Shi Importer.

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The WACC's formula is:

WACC = Wd*rD*(1-T) + We*rS + Wp*rPs;

where:

Wd = weight of debt
We = weight of common ...

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