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    Computing the Weighted Average Cost of Capital

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    A) Suppose a company has bonds of $600,000, preferred stock of $100,000 and common stock of $300,000. The after tax cost of tax is 6%, preferred stock is 8%, and common stock is 12%. What is the WACC?

    B) Suppose a company has bonds of $600,000, preferred stock of $100,000 and common stock of $300,000. The before tax cost of tax is 8%, preferred stock is 8%, and common stock is 12%. The tax rate is 35% What is the WACC?

    C) Which company has the preferable WACC? Why?

    do the calculation in excel sheet with explanation please

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    Solution Preview

    The company's WACC=[Cost of debt*(1-tax rate)*(Value of Debt/Total Capital)]+[Cost of ...

    Solution Summary

    This solution computes the weighted-average cost of capital for a firm with bonds, preferred stock, and common stock. The solution is on an Excel spreadsheet.

    $2.19

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