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# Computing The Weighted Average Cost of Capital

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The following is on a balance sheet

Current Asset: \$3,600
Fixed Asset: \$6,400

Total Assets: \$10,000

Debt: \$5200
Preferred Stock: \$600
Common equity \$4200

Total liabilities and equity: \$10,000

The market value of debt, preferred stock, and common equity equals its book value. Cost of debt is 8.0%, it cost of preferred stock is 7.7% and its cost of common equity is 16.3% . Tax rate is 40% what is the WACC?

Options (choose one)

A. 9.80
B. 10.43
C. 9.65
D 10.95
E 10.23

#### Solution Preview

The after-tax cost of debt=cost of debt*(1-tax rate). In this case, the cost of debt is .08*(1-.40), or 4.80 percent.

Type Cost Market Value Percentage ...

#### Solution Summary

Using an Excel 97-2003 file, given a company's balance sheet, tax rate and costs of equity and debt, it demonstrates how to compute the weighted-average cost of capital.

\$2.19