Milton Parker has a capital structure that consists of $7 million of debt, $2 million of preferred stock, and $11 million of common equity, based upon current market values. Parker's yield to maturity on its bonds is 7.4%, and investors require an 8% return on Parker's preferred and a 14% return on Parker's common stock. If the tax rate is 35%, what is Parker's WACC?
WACC = Proportion of debt X cost of debt + proportion of preferred stock X cost of preferred stock ...
The solution explains how to calculate the WACC