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WACC Calculation for Copernicus Inc

Copernicus Inc. has determined that its target capital structure will be
60% debt, 10% preferred stock, and 30% common stock. As the financial
manager, the CFO has informed you that the company's before tax cost of
debt is 10%, preferred stock is 14%, and common stock is 16%. In
addition, the company's marginal tax rate is 40%. Based on the
information provided, calculate the weighted average cost of capital

Please provide detailed explanation, and show all steps. Thanks!

Solution Preview

The weighted average cost of capital (wacc) is calculated by taking the weighted average of the cost of the various components of the capital structure with the proportion being used as the weights. We use the target capital structure to get the proportions. The cost of capital should be the after tax value. In the ...

Solution Summary

The solution explains in a step-by-step manner how to calculate the weighted average cost of capital (WACC).