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With the following information compute the WACC: Corporate tax rate 40%, before tax cost of debt - 12%, preferred stock price - $32, common stock price - $21, dividend growth rate - 4.7%, preferred stock yearly dividend - $5.00, common stock yearly dividend - $2.50, preferred stock flotation cost per share $6.00.

Solution Preview

Please see the attached file.

Step 1: Calculate the after tax cost of debt

Marginal Tax rate T = 40% (Corporate Tax Rate)
Pre tax cost of debt= kd= 12.00%
After tax cost of debt= kd(1-T)= 7.20% =(100% -40.%)*12.%

Step 2: Calculate the cost of equity
We will calculate the cost of equity using Dividend discount ...

Solution Summary

The solution calculates WACC given Corporate tax rate, before tax cost of debt, preferred stock price, common stock price, dividend growth rate, preferred stock yearly dividend, common stock yearly dividend, preferred stock flotation cost