A firm has $50 million of common stock,$10 million of preferred stock,and $15 million of debt.The cost of equity is 9%,the cost of preferred stock is 7%,and the pretax cost of debt is 4%.If the firm's tax rate is 25%,what is the firm's WACC?

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The firm's Weighted Average Cost of Capital (WACC) is calculated as follows:$$ WACC = E/V \times Re + P/V \times Rp + D/V \times Rd \times (1 - Tc) $$Where:- $E$ is the market value of the equity ($50 million),- $P$ is the market value of the preferred stock ($10 million),- $D$ is the market value of the debt ($15 million),- $V = E + P + D = $75 million$ is the total market value of the firm's financing,- $Re = 9\%$ is the cost of equity,- $Rp = 7\%$ is the cost of preferred stock,- $Rd = 4\%$ is the pretax cost of debt,- $Tc = 25\%$ is the corporate tax rate.Plugging in the values:$$ WACC = \frac{50}{75} \times 9\% + \frac{10}{75} \times 7\% + \frac{15}{75} \times 4\% \times (1 - 0.25) $$$$ WACC = \frac{2}{3} \times 9\% + \frac{2}{15} \times 7\% + \frac{1}{5} \times 4\% \times 0.75 $$$$ WACC = 6\% + 0.933\% + 0.6\% = 7.533\% $$Therefore, the firm's WACC is approximately 7.53%.

A Firm Has $50 Million of Common Stock,$10 Million of Preferred