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A firm has a capital structure with 40% debt, 50% equity, and 10% preferred stock. If the following information is given, calculate company's WACC.

YTM on firm's bond is 7.2%

Beta is 1.2; risk free rate 5%; market risk premium is 5%

Preferred stock pays dividend of $8 and sells for $100

Solution Preview

share of debt is D = 0.4
share of preferred stock is PS= 0.10
share of equity is CS = 0.5

WACC is a calculation of a firm's cost of capital that weights each category of capital ...

Solution Summary

WACC is depicted.