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Calculating the Weighted Average Cost of Capital (WACC) for Kroncke Company

You were hired as a consultant to Kroncke Company, whose target capital structure is 40% debt, 10% preferred, and 50% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 13.25%. The firm will not be issuing any new stock. What is its WACC?

a. 9.48%
b. 9.78%
c. 10.07%
d. 10.37%
e. 10.68%

Solution Summary

The solution explains the calculation of WACC for Kroncke Company. Formula, calculations and answer are provided.