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?

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The WACC is calculated by weighting the cost of each component by its proportion in the firm's capital structure. The market value of equity is 60,000 shares * $45 = $2,700,000. The market value of preferred stock is 12,000 shares * $52 = $624,000. The market value of debt is $400,000 * 1.02 = $408,000. The total market value is $2,700,000 + $624,000 + $408,000 = $3,732,000. The weights are: equity = $2,700,000 / $3,732,000, preferred = $624,000 / $3,732,000, debt = $408,000 / $3,732,000. WACC = (equity weight * cost of equity) + (preferred weight * cost of preferred) + (debt weight * after-tax cost of debt). Calculating gives WACC ≈ 11.83%.

CTO Transport Has an Aftertax Cost of Debt of 5