Weighted Average Cost of Capital (WACC)
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Given the following information on T & T, Inc. capital structure, compute the companyâ??s weighted average cost of capital. The company's marginal tax rate is 40%.
Type of Percent of Before-Tax
Capital Capital Structure Component Cost
Bonds 40% 7.5%
Preferred stock 5% 11%
Common stock (internal only) 55% 15%
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Solution Summary
The solution computes wacc with the given information.
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The formula for WACC = Cost of Equity * Percent of Equity + Cost of Debt*(1 - tax rate)*Percent of Debt
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