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 11.50%.The firm will not be issuing any new stock.What is its WACC?

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Quizplus · Accepted Answer

The correct answer is A because the WACC is calculated as follows:WACC = (Weight of debt * Cost of debt) + (Weight of preferred * Cost of preferred) + (Weight of common equity * Cost of common equity)WACC = (0.40 * 0.06) + (0.15 * 0.075) + (0.45 * 0.115)WACC = 0.024 + 0.01125 + 0.05175WACC = 0.087 or 8.70%

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