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Calculating WACC for Security Market Value

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I need your help with this problem. How do I calculate WACC; Reactive Industries has the following capital structure. Its corporate tax rate is 35 percent. What is its WACC?

SECURITY MARKET VALUE REQUIRED RATE OF RETURN

DEBT $20 Million 6%
PREFERRED STOCK $10 Million 8%
COMMON STOCK $50 Million 12%

Can you help me with the meanings of abbreviations and formulas if they are used. And can you tell me the meaning of WACC, also can you explain how you got the answer, if you used EXCEL or financial calculator. I am not familiar with them.

Thank you your help is GREATLY appreciated.

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WACC= weighted average cost of capital
WACC includes common stock, preferred stock, bonds, and any other long-term debt. WACC is calculated by multiplying the cost of each capital component by its proportional weighting (or percentage) and then summing:

WACC= (E/V) x Re + = (D/V) x Rd x (1-Tc)

Where:
Re = cost of equity
Rd = cost of debt
E = the market value of the firm's equity
D = ...

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Umut Oltulu, MBA
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  • MBA, Texas A&M University-Kingsville
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