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    Reactive Industries: WACC Calculations

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    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%

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    Solution Preview

    See the attached file for proper formatting.

    Step 1: Calculate the weightage of debt, equity and preferred stock

    Current Market Value % weightage
    Debt: 20 million 25.00% =20/80
    Preferred Stock: 10 million 12.50% =10/80
    Common Stock ...

    Solution Summary

    This solution calculates WACC for Reactive Industries given its capital structure, its corporate tax rate and the required rate of return on debt, preferred stock and common stock. An Excel file also accompanies this solution and provides the response in proper formatting.