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Calculating WACC: What is the weighted average cost of capital?

A company you are researching has common stock with a beta of 1.25. Currently, Treasury bills yield 4%, and the market portfolio offers an expected return of 13%. The company finances 20% of its assets with debt that has a yield to maturity of 6%. The firm also uses preferred stock to finance 30% of its assets. The preferred stock has a current price of $10 per share and pays a level $1.00 dividend. The firm is in the 35% tax bracket. What is the weighted average cost of capital?


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Return on common stock=rc=4%+1.25*(13%-4%)=15.25%
Cost of debt=rd=6%
Cost of ...

Solution Summary

This solution provides formula and calculations for WACC in the given case.