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WACC - Locke Company

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Your are hired as a consultant to Locke Company, and you were provided with the following data. Target capital structure: 40% debt, 10% preferred stock and 50% common equity. The interest rate on a new debt is 7.5%, the yield on the preferred is 7.0%, the cost of retained earning is 11.50% and tax rate is 40%. The firm will not be issuing any new stock. What is the firm's WACC.

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The solution explains how to calculate the WACC.

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WACC = Proportion of debt X cost of debt X (1-tax rate) + Proportion of Preferred Stock X Cost of ...

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