You were hired as a consultant to Giambono Company,whose target capital structure is 40% debt,15% preferred,and 45% common equity.The after-tax cost of debt is 6.00%,the cost of preferred is 7.50%,and the cost of retained earnings is 12.75%.The firm will not be issuing any new stock.What is its WACC?
A)8.98%
B)9.26%
C)9.54%
D)9.83%
E)10.12%

Question

Quizplus · Accepted Answer

The WACC is calculated using the formula: WACC = (E/V * Re) + (D/V * Rd * (1-T)) + (P/V * Rp), where E, D, and P are the market values of equity, debt, and preferred stock, respectively, and V is the total market value of the firm's financing (E + D + P). Re, Rd, and Rp are the costs of equity, debt, and preferred stock. Given the target capital structure and costs, WACC = (0.45 * 12.75%) + (0.40 * 6.00%) + (0.15 * 7.50%) = 9.26%.

You Were Hired as a Consultant to Giambono Company,whose Target