CTO Transport has an aftertax cost of debt of 5.6 percent,a cost of equity of 13.7 percent,and a cost of preferred stock of 7.8 percent.The firm has 60,000 shares of common stock outstanding at a market price of $45 a share.There are 12,000 shares of preferred stock outstanding at a market price of $52 a share.The bond issue has a total face value of $400,000 and sells at 102 percent of face value.The tax rate is 35 percent.What is the company's WACC?

Question

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MV_Debt = $400,000 × 1.02 = $408,000 MV_Preferred = 12,000 × $52 = $624,000 MV_Equity = 60,000 × $45 = $2,700,000 MV_{D + E} = $408,000 + $624,000 + $2,700,000 = $3,732,000 WACC = ($2,700,000 / $3,732,000)(0.137)+ ($624,000 / $3,732,000)(0.078)+ ($408,000 / $3,732,000)(0.056)= 0.1183,or 11.83%

CTO Transport Has an Aftertax Cost of Debt of 5