Mirion Tech, Inc., has r_E of 12%, an r_D of 6%, at a debt-equity ratio of 0.50. Mirion plans to raise enough preferred stock to retire half of their outstanding common stock, which currently has a market value of $7 million. If the preferred stock has an expected rate of return of 10%, what is the new WACC? (Assume a 21% marginal corporate tax rate and that r_D remains at 6%.) A)14.23% B)11.02% C)9.58% D)6.60%

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Quizplus · Accepted Answer

The new WACC is calculated considering the change in the capital structure due to the introduction of preferred stock and the reduction of common stock. The formula for WACC takes into account the cost of equity, the cost of debt, the cost of preferred stock, and their respective proportions in the capital structure, adjusted for taxes. Given the information, the new WACC reflects the mix of debt, preferred, and common equity after the transaction, considering the costs of each and the corporate tax rate.