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Target Capital Structure (WACC)

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Suppose Bianca's target capital structure is as follows:

Wd=0.40 Wps=0.10 Wce=0.50;

Its before-tax cost of debt is 8.0%, cost of equity is 12.0%, cost of preferred stock is 8.4%, and the marginal tax rate is 40%. Calculate Bianca's Weighted Average Cost of Capital (WACC).

Please show your work so I can understand how to do this going forward. Thank you.

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Solution Summary

This solution computes the weighted average cost of capital (WACC) based on the initial costs of capital.

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The WACC function is:
WACC = Wd * Rd (1-t) + Wce * Rce + Wps * Rps

According to ...

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