Sun Lee Importers has a cost of debt of 9 percent, a cost of equity of 14 percent, and a cost of preferred stock of 10 percent. The ﬁrm has 87,000 shares of common stock outstanding at a market
Price of $27 a share. There are 30,000 shares of preferred stock outstanding at a market price of
$41 a share. The bond issue has a total face value of $750,000 and sells at 99 percent of face
Value. The company's tax rate is 35 percent. What is the weighted average cost of capital for Sun
Lee Importers?

Question

Quizplus · Accepted Answer

The WACC is calculated using the formula: WACC = (E/V * Re) + (P/V * Rp) + (D/V * Rd * (1-Tc)), where E, P, and D are the market values of equity, preferred stock, and debt, respectively, and V is the total market value of the firm's financing (E + P + D). Re, Rp, and Rd are the costs of equity, preferred stock, and debt, respectively, and Tc is the tax rate. Calculating each component and substituting into the formula gives a WACC of approximately 11.46 percent.

Sun Lee Importers Has a Cost of Debt of 9