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WACC

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Milton Parker has a capital structure that consists of $7 million of debt, $2 million of preferred stock, and $11 million of common equity, based upon current market values. Parker's yield to maturity on its bonds is 7.4%, and investors require an 8% return on Parker's preferred and a 14% return on Parker's common stock. If the tax rate is 35%, what is Parker's WACC?

a) 7.21%
b) 8.12%
c) 10.18%
d) 12.25%
e) 12.75%

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Solution Summary

The solution explains how to calculate the WACC

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WACC = Proportion of debt X cost of debt + proportion of preferred stock X cost of preferred stock ...

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