Explore BrainMass
Share

Copernicus Inc: Calculate WACC given a target capital structure

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

WACC Problem - Copernicus Inc. has determined that its target capital structure will be 605 debt, 105 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 the common stock is 16%. In addition, the company's marginal tax rate is 40%.

Based on the information provided, calculate the weight average cost of capital.

© BrainMass Inc. brainmass.com March 21, 2019, 11:50 am ad1c9bdddf
https://brainmass.com/business/weighted-average-cost-of-capital/51970

Solution Preview

First, the total shares of debt+preferred stock = 1-0.3 = 0.7
Then share of debt is D = 0.7 * 605/(605+105) = 0.60
share of preferred stock is PS= 0.7 * 105/(605+105) = 0.10

WACC is a calculation ...

Solution Summary

The solution displays the formulas and calculations to arrive at an answer.

$2.19