Problem:
Milton Parker has a capital structure that consists of $7 million of debt, $2 million of preferred stock, and $11 million of common equity, based upon current market values. Parker's yield to maturity on its bonds is 7.4%, and investors require an 8% return on Parker's preferred and a 14% return on Parker's common stock.
Required:
Question: If the tax rate is 35%, what is Parker's WACC?
- 7.21%
- 8.12%
- 10.18%
- 12.25%
- 12.75%
Note: Be sure to show how you arrived at your answer.