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Calculating the WACC for Melancholy Business Solution

Melancholy Business Solution's capital structure is as follows:

Debt 35%
Preferred stock 15
Common equity 50

The after-tax cost of debt is 6.5 percent; the cost of preferred stock is 10 percent; and the cost of common equity (in the form of retained earnings) is 13.5 percent.

Calculate Melancholy Business Solution's weighted average cost of capital.

Solution Summary

The solution explains the calculation of weighted average cost of capital (WACC) with debt and common equity as capital components